Modvat/Cenvat credit for job work machinery upheld where processed goods were returned and cleared on payment of duty.

Modvat/Cenvat credit on inputs used to manufacture capitalised machines for job work could not be denied merely because the machines were said to be used for exempted or nil-rated goods. The machines were employed in processing goods received under job work arrangements, and the processed goods were returned to the principal manufacturers and ultimately cleared on payment of duty. That clearances on job work basis were not equivalent to clearances of exempted or nil-rated goods, so the premise for denying credit was incorrect. Credit was therefore held admissible and the denial unsustainable.

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Issues: Whether Modvat/Cenvat credit on inputs used in the manufacture of capitalised machines employed for job work could be denied on the premise that the machines were used exclusively for exempted or nil-rated goods.

Analysis: The machines manufactured by the assessee were used for processing goods received for job work under Rule 57F(4) of the Central Excise Rules, 1944. The goods processed were returned to the principal manufacturers and were ultimately cleared on payment of duty. Such clearance on job work basis could not be equated with clearance of exempted goods or goods chargeable to nil rate of duty. The reasoning that the capitalised machines were used exclusively for exempted goods was therefore incorrect, and the principle applied in the cited decisions supported admissibility of credit.

Conclusion: The denial of Modvat/Cenvat credit was not sustainable and the appeal was allowed.

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