MODVAT credit on duty-paid intermediate goods returned by a job worker remains available under Rule 57F(2).

MODVAT credit remained available where inputs removed under Rule 57F(2) were used by a job worker to make intermediate products and returned after duty payment. The rule permits duty-paid inputs to be sent out for manufacture of intermediates and brought back for further use in final products; it does not prescribe the exact mode of clearance from the job worker's premises. Payment of duty by the job worker on the intermediates did not take the transaction outside the MODVAT scheme, and the manufacturer could take credit of the duty actually paid. The benefit could not be denied on the ground that the goods were not cleared under the exemption route.

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Issues: Whether MODVAT credit was admissible when inputs removed under Rule 57F(2) were used by a job worker to manufacture intermediate products which were returned after payment of duty.

Analysis: Rule 57F(2) permits removal of duty-paid inputs for manufacture of intermediate products and their return to the manufacturer's factory for further use in the manufacture of final products. The rule does not expressly deal with the manner in which the intermediate goods are to be cleared from the job worker's premises. Where the job worker elects to pay duty on the intermediate products, the consequent duty-paid clearance does not take the transaction outside the MODVAT framework. The manufacturer who sent the inputs out under permission under the rule and received the duty-paid intermediate goods back may take credit of the duty so paid. The transaction remains revenue neutral, and the benefit of the rule cannot be denied merely because the job worker did not clear the goods under the exemption route.

Conclusion: The appellants complied with Rule 57F(2) and were entitled to MODVAT credit; the objection based on duty payment by the job worker fails.

Ratio Decidendi: Duty payment by a job worker on intermediate goods manufactured from inputs sent out under Rule 57F(2) does not, by itself, defeat the manufacturer's entitlement to MODVAT credit where the inputs and intermediate goods are otherwise handled in accordance with the rule and the credit taken is limited to the duty actually paid.

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