Modvat credit on capital goods used for a non-marketable intermediate product was upheld for the final dutiable product.

Modvat credit on capital goods used to manufacture an intermediate product captively consumed in producing a final dutiable product was held admissible. The denial based on the intermediate product attracting nil duty was rejected because the intermediate product had already been treated as non-marketable and therefore non-excisable. On that basis, the capital goods used in the process qualified for credit under Rule 57Q, and the credit could be utilised against duty on the final product.

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Issues: Whether Modvat credit on capital goods used in the manufacture of an intermediate product, which was captively consumed for producing the final dutiable product, was admissible.

Analysis: The denial of credit was based on the view that the intermediate product was chargeable to nil rate of duty and therefore the capital goods used for its manufacture were not eligible for Modvat credit. The Tribunal held that the issue was already settled in favour of the assessee in an earlier Division Bench decision, which had ruled that the intermediate product was not marketable and therefore not excisable. On that basis, the capital goods used in the process qualified for credit under Rule 57Q, and the credit could be utilised against duty on the final product.

Conclusion: Modvat credit on the capital goods was admissible and the denial of credit was unsustainable.

Ratio Decidendi: Where an intermediate product is not marketable and is captively consumed in the manufacture of a final dutiable product, capital goods used in that process are eligible for Modvat credit under Rule 57Q.

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