MODVAT credit on inputs used through an exempt intermediate product remains admissible when linked to final excisable goods.

Deemed MODVAT credit on re-rollable material was held admissible where the input was used to manufacture wire, and that wire served as an essential intermediate product in making cement spun pipes. The applicable scheme under Rule 57G(2) and Rule 57D(2) treated the intermediate character of the wire as immaterial to credit entitlement. Credit could not be denied merely because the intermediate product was exempt from duty, so long as the input was used in relation to the manufacture of the final excisable goods.

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Issues: Whether deemed MODVAT credit on re-rollable material was admissible when the material was used to manufacture wire, and the wire was in turn used as an intermediate product in the manufacture of cement spun pipes.

Analysis: The credit question was examined by reference to the scheme of Rule 57G(2) and Rule 57D(2). The material was not used directly for the final product, but for wire which emerged during the course of manufacture and was necessary for producing cement spun pipes. The intermediate character of the wire was treated as material to the availability of credit, and the fact that the intermediate product was exempt did not by itself defeat admissibility where the input was used in relation to the manufacture of the final product. The reasoning adopted the principle that inputs essential to the manufacturing chain can qualify even when they first operate through an intermediate product.

Conclusion: Deemed MODVAT credit on re-rollable material was admissible, and the issue was decided in favour of the assessee.

Ratio Decidendi: Where an input is used in the manufacture of an intermediate product that is essential to produce the final excisable goods, credit cannot be denied merely because the intermediate product is exempt from duty.

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