Modvat credit on inputs for capital goods used in dutiable production cannot be denied under Rule 57D.

Modvat credit could not be denied where inputs were used to manufacture capital goods that were subsequently used in the manufacture of dutiable final products. Rule 57D was applied to protect credit from denial or variation when the inputs went into capital goods that were not themselves chargeable to duty, and the provision was treated as unambiguous. The fact that those capital goods were used in making dutiable final products meant the assessee's credit remained admissible, and denial on the ground that the capital goods were exempt or non-dutiable was rejected.

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Issues: Whether Modvat credit could be denied on inputs used in the manufacture of capital goods which were subsequently used in the manufacture of dutiable final products.

Analysis: Rule 57D protected credit from denial or variation where inputs were used in the manufacture of capital goods and such capital goods were not chargeable to duty. The capital goods in question were used in the manufacture of dutiable final products, and the language of the rule was held to admit of no ambiguity. On that basis, the denial of credit on the ground that the inputs were used in exempt capital goods was rejected.

Conclusion: Modvat credit was admissible to the assessee, and the denial of credit was not sustainable.

Ratio Decidendi: Where inputs are used in the manufacture of capital goods that are in turn used in the manufacture of dutiable final products, Modvat credit cannot be denied merely because the capital goods themselves were not chargeable to duty.

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