Modvat credit on captive intermediate products remains admissible despite exemption, where inputs are used within the factory.

Modvat credit on inputs used to manufacture bus-bar was held admissible because the bus-bar was treated as a captively consumed intermediate product, not a final cleared product. Its exemption under Notification No. 67/95-C.E. did not by itself bar credit, and Rule 57C objection failed. Credit remained available under Rule 57D(2) for inputs used in manufacture of the intermediate product, so the demand and penalty were set aside.

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Issues: Whether Modvat credit on inputs used in the manufacture of bus-bar, a captively consumed exempt intermediate product, was admissible notwithstanding the exemption under Notification No. 67/95-C.E. and the objection based on Rule 57C.

Analysis: The decisive question was whether bus-bar retained the character of an intermediate product when it was not cleared as such but was consumed within the factory in the manufacture of aluminium and aluminium products. The record showed that the assessee's classification/listing itself disclosed such captive use. On that basis, bus-bar was treated as an intermediate product. Once so treated, the exemption of the intermediate product did not, by itself, destroy the availability of credit on the inputs used in its manufacture, and the credit was admissible under Rule 57D(2).

Conclusion: The credit was held admissible and the objection based on Rule 57C failed; the issue was decided in favour of the assessee.

Final Conclusion: The demand and penalty were set aside because the captively consumed bus-bar was recognised as an intermediate product eligible for input credit.

Ratio Decidendi: Inputs used in the manufacture of a captively consumed intermediate product remain eligible for Modvat credit under Rule 57D(2), and exemption of that intermediate product does not by itself bar such credit.

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