Modvat credit on common capital goods allowed where used for both dutiable and exempt final products.

Modvat credit on capital goods used commonly for both dutiable and exempted final products was held admissible. The Tribunal applied its earlier view that credit cannot be denied merely because the same capital goods are employed in manufacturing cotton yarn in cones, as well as plain reel hanks and yarn waste liable to exemption or nil duty. Denial of credit would arise only where the capital goods are used exclusively for non-dutiable goods. On that basis, the Revenue's challenge failed and credit on the capital goods was allowed.

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Issues: Whether Modvat credit on capital goods is admissible when the same capital goods are used for manufacture of both dutiable and exempted final products.

Analysis: The dispute concerned capital goods used commonly for manufacture of cotton yarn in cones, which was dutiable, and plain reel hanks and yarn waste, which were exempt or liable to nil rate of duty. The Tribunal followed its earlier view that credit cannot be denied merely because the capital goods are used for both dutiable and exempted products. The denial would arise only where the capital goods are exclusively used for non-dutiable goods.

Conclusion: Modvat credit on the capital goods was admissible and the Revenue's challenge failed.

Ratio Decidendi: Where capital goods are used for the manufacture of both dutiable and exempted final products, Modvat credit cannot be denied merely on that ground; denial is justified only if the capital goods are exclusively used for non-dutiable goods.

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