MODVAT/CENVAT credit on capital goods upheld where job-work clearances under Notification No. 214/86-C.E. were not exempted goods.

MODVAT/CENVAT credit on capital goods could not be denied merely because the goods were used in a job-work arrangement under Notification No. 214/86-C.E., where the assessee also manufactured dutiable products and the clearances through the job-work route were not treated as exempted goods. The legal position applied was that credit remains available when intermediate processing in a job-worker's factory does not change the dutiable character of the final products or amount to exclusive use for exempted goods. On that basis, denial of credit was unjustified, and the assessee was entitled to the credit claimed.

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Issues: Whether MODVAT/CENVAT credit on capital goods could be denied where the goods were used in a job-work arrangement under Notification No. 214/86-C.E. and the clearances did not amount to exclusive use for exempted goods.

Analysis: The appeal turned on the character of the job-work clearances and the effect of Notification No. 214/86-C.E. The machinery in question was used in lines carrying out machining work for a principal manufacturer, while the assessee also manufactured other products on which duty was paid. The legal position applied was that credit cannot be denied merely because goods pass through a job-worker's factory without duty, so long as the final products remain dutiable and the goods cleared under the job-work procedure are not to be treated as exempted goods. The reasoning was reinforced by the principle that the credit scheme is intended to avoid cascading of duty and that intermediate processes do not, by themselves, destroy entitlement to credit.

Conclusion: Denial of MODVAT/CENVAT credit was not justified and the assessee was entitled to the credit claimed.

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