Modvat credit on job-work and captive-consumption inputs upheld under the governing scheme despite duty-free clearance of processed goods.

Modvat credit was treated as admissible where inputs were used by a job worker in processing goods for return to the principal manufacturer and where inputs were captively consumed in manufacturing final products cleared by the assessee. The Tribunal applied its earlier Jindal Polymers reasoning and held that the governing Modvat scheme covered both the job-work and captive-consumption situations, so Rule 57C was not a basis to deny credit merely because the processed goods were cleared without duty by the principal manufacturer or within the same manufacturing arrangement. The orders disallowing credit were set aside.

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Issues: Whether Modvat credit was admissible on inputs used by a job worker in processing goods received from the principal manufacturer and on inputs captively consumed in the manufacture of final products cleared by the assessee.

Analysis: The dispute turned on the applicability of the Tribunal's earlier decision in Jindal Polymers, which had recognised credit entitlement in comparable job-work situations. The assessee's inputs were used in relation to goods processed under the job-work arrangement and returned to the principal manufacturer, while in the connected appeal the inputs were used for manufacture of final products cleared by the assessee itself. On the facts, both situations were treated as covered by the same controlling principle governing Modvat credit availability and the exclusion under Rule 57C was not applied so as to deny credit.

Conclusion: Modvat credit was held admissible to the assessee in both appeals, and the orders denying credit were set aside.

Ratio Decidendi: Where inputs are used in a recognised job-work or captive-consumption manufacturing arrangement covered by the governing Modvat scheme, credit cannot be denied merely because the processed goods are cleared without duty by the principal manufacturer or are otherwise cleared in the course of the same manufacturing arrangement.

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