Modvat credit on capital goods cannot be denied merely because a non-marketable intermediate product emerges during manufacture.

Modvat credit on capital goods could not be denied merely because combed/carded cotton (sliver) emerged as an intermediate product during manufacture, since earlier Tribunal rulings and the Delhi High Court view treated sliver as non-marketable and not excisable. Board clarification also supported that credit is not denied where capital goods are used in making an exempt intermediate product captively consumed in dutiable final products. The remand order was wide enough to permit reconsideration of the matter afresh, including marketability, so the original authority did not exceed its scope when examining Modvat credit on merits. The impugned order was set aside and the assessee's appeal was allowed.

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Issues: (i) Whether the original authority exceeded the scope of the remand order while deciding the matter afresh; (ii) Whether Modvat credit on capital goods could be denied because an intermediate product, namely combed/carded cotton (sliver), emerged during manufacture.

Issue (i): Whether the original authority exceeded the scope of the remand order while deciding the matter afresh.

Analysis: The remand had been made without expressing any opinion on the merits and with liberty to the assessee to raise all pleas available in law. The remand required reconsideration of the issue afresh, including the marketability of the intermediate product, and did not confine the lower authority to a limited inquiry. The original authority, therefore, was entitled to examine the admissibility of Modvat credit on merits after dealing with marketability.

Conclusion: The finding that the original authority travelled beyond the remand was incorrect and unsustainable.

Issue (ii): Whether Modvat credit on capital goods could be denied because an intermediate product, namely combed/carded cotton (sliver), emerged during manufacture.

Analysis: The issue was covered by earlier Tribunal rulings and the Delhi High Court view that sliver is not marketable and does not constitute excisable goods. The Tribunal also relied on the Board's clarification that credit is not to be denied merely because capital goods are used in the manufacture of an exempt intermediate product captively consumed in the manufacture of dutiable final products. On that basis, emergence of sliver could not justify denial of credit on capital goods.

Conclusion: Modvat credit could not be denied on account of the intermediate emergence of combed/carded cotton (sliver).

Final Conclusion: The impugned order was set aside and the assessee's appeal was allowed, resulting in acceptance of Modvat credit entitlement.

Ratio Decidendi: Credit on capital goods cannot be denied merely because an intermediate product emerges in the course of manufacture where that product is not marketable, and a remand order permitting reconsideration on merits authorises the lower authority to decide the issue afresh within that liberty.

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