Modvat credit on capital goods denied because use at receipt was for exempted products, and later dutiable use did not cure the defect.

Modvat credit on capital goods was unavailable where, at the time of receipt and use, the machinery was employed exclusively in manufacturing exempted final products. Rule 57Q permitted credit on duty-paid capital goods, but Rule 57R(1) barred credit when the capital goods were used for final products on which no excise duty was payable. The decisive factor was the position at receipt, and the later withdrawal of exemption or subsequent dutiable use did not revive a credit that was not admissible initially. The absence of the required Rule 57T declaration also supported denial of credit.

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Issues: Whether Modvat credit on capital goods was admissible when, at the time of receipt, the capital goods were used exclusively in the manufacture of exempted final products, notwithstanding that the final products later became dutiable.

Analysis: Rule 57Q allowed credit of duty paid on capital goods, while Rule 57R(1) barred such credit where the capital goods were used in the manufacture of final products on which no excise duty was payable. The decisive point was the position at the time the capital goods were received and put to use. The record showed that when the machine was received it was used in the manufacture of exempted bulbs, and the required declaration under Rule 57T was not brought on record. Subsequent withdrawal of exemption or later use for dutiable goods did not revive a credit that was not available at the time of receipt.

Conclusion: Modvat credit was not admissible, and the Revenue's appeal succeeded.

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