Modvat credit for equipment used in manufacture cannot be denied solely because it relates to an exempt intermediate product.

Modvat credit on water coolers used in the synthesis loop was claimed as capital goods credit because they condensed synthesis gas used to manufacture ammonia, the dutiable final product. Delayed filing of the declaration was explained, and the equipment's connection with an exempt intermediate product was not treated as a valid ground to deny credit where the rule-based conditions for capital goods credit were otherwise satisfied. The assessee was therefore entitled to Modvat credit on the water coolers.

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Issues: Whether Modvat credit on water coolers used in the manufacturing process could be denied on the grounds of delayed filing of declaration and use in relation to an exempt intermediate product.

Analysis: The water coolers were installed in the synthesis loop and were used in condensing synthesis gas, which was an intermediate product leading to the manufacture of ammonia, the final product cleared on payment of duty. The delay in filing the declaration was explained, and the mere fact that the equipment related to an exempt intermediate product was held not to be a valid basis for denying capital goods credit where the final product was dutiable and the conditions for credit under the relevant rule were satisfied.

Conclusion: The assessee was entitled to Modvat credit on the water coolers.

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