Job-work exemption does not bar MODVAT credit where inputs feed both dutiable and exempt clearances, following approved precedent.

MODVAT/CENVAT credit was treated as admissible on inputs used for goods manufactured partly on own account and partly on job work, where the job-worked clearances were made without duty under Notification No. 214/86-CE. The Tribunal's reliance on the Larger Bench ruling in Sterlite Industries was upheld because later Division Bench precedent had approved the same position, so credit could not be denied merely because part of the production was cleared duty-free under the job-work arrangement. The Revenue's challenge failed, and the order in favour of the assessee was confirmed.

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Issues: (i) Whether MODVAT credit is admissible on inputs used in the manufacture of goods cleared without duty under the job-work exemption and Notification No. 214/86-CE. (ii) Whether the Tribunal was correct in following the Larger Bench decision in Sterlite Industries.

Issue (i): Whether MODVAT credit is admissible on inputs used in the manufacture of goods cleared without duty under the job-work exemption and Notification No. 214/86-CE.

Analysis: The assessee manufactured goods partly on its own account and partly on job work. The goods manufactured on own account were cleared on payment of duty, while the job-worked goods were cleared without payment of duty under the applicable excise and CENVAT provisions and Notification No. 214/86-CE. The Tribunal held, following the Larger Bench ruling in Sterlite Industries, that credit on inputs used in both categories could not be denied merely because part of the production was cleared without duty under the job-work arrangement. The High Court found that the later Division Bench decision in Kyungshin Industrial Motherson Ltd. had already approved the same legal position.

Conclusion: MODVAT/CENVAT credit was admissible, and the Revenue's challenge failed.

Issue (ii): Whether the Tribunal was correct in following the Larger Bench decision in Sterlite Industries.

Analysis: The Tribunal relied on the Larger Bench decision because the facts were materially similar, and that view had subsequently been approved by other Division Benches and by the Bombay High Court. In that circumstance, the Tribunal's reliance on the Larger Bench ruling was held to be free from error.

Conclusion: The Tribunal was correct in applying the Larger Bench decision.

Final Conclusion: The Revenue's appeal failed, the Tribunal's order was confirmed, and the substantive questions were answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where a binding larger-bench decision on materially identical facts has been approved in later precedent, credit on inputs used in job-worked clearances covered by the applicable exemption cannot be denied merely because the goods are cleared without duty.

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