Marketability remains essential for excise credit: captive intermediate product use did not defeat Modvat credit on capital goods.

Modvat credit on capital goods used for manufacturing an intermediate product could not be denied merely because that intermediate stage was excluded under the relevant capital goods provision or was not itself a marketable final product. Sliver/carded or combed cotton was treated as transient, without independent market existence, and incapable of being bought and sold. Since the final product, cotton yarn, was cleared on payment of duty and the intermediate product was used captively in its manufacture, marketability remained the essential excise criterion. Credit on the capital goods was therefore admissible.

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Issues: Whether Modvat credit on capital goods used in the manufacture of an intermediate product could be denied on the ground that the intermediate product was excluded from the relevant capital goods provisions and was not a marketable final product.

Analysis: The intermediate product, namely sliver/carded or combed cotton, was found to have no independent existence, to be of a transient character, and to be incapable of being bought and sold in the market. The final product, cotton yarn, was cleared on payment of duty, and the intermediate product was used captively in its manufacture. In such circumstances, the governing principle was that marketability is an essential ingredient of goods for excise purposes, and credit could not be denied merely because the intermediate stage product fell under a tariff heading or because of the exclusion relied on by the revenue.

Conclusion: The question was answered against the revenue and in favour of the assessee; Modvat credit on the capital goods was held admissible.

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