Modvat credit on inputs used through an intermediate compound remained admissible for dutiable insulated wires and cables.

Modvat credit was treated as admissible on synthetic rubber and rubber chemicals used to make rubber compound, because the compound formed a component of insulated wires and cables and was used in relation to manufacture of the dutiable final product. The fact that the compound was separately manufactured, or that an intermediate exempt product emerged, did not by itself defeat credit under Rule 57D. On the facts stated, the extended period and penalty were also not justified because the inputs had been declared and suppression was not made out. The Department's reference application was rejected as misconceived in light of the Tribunal's final order.

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Issues: Whether modvat credit could be denied on synthetic rubber and rubber chemicals used to manufacture rubber compound, which was in turn used as a component of insulated wires and cables, and whether the reference sought by the Department was maintainable.

Analysis: The inputs were used in the manufacture of rubber compound, which formed sheathing and a component of the final product, insulated wires and cables. The fact that the rubber compound was manufactured separately did not take the inputs outside the ambit of manufacture in relation to the final product, since what is relevant is whether the goods are used in or in relation to manufacture and whether they ultimately become part of the dutiable final product. The position was also covered by the settled principle under Rule 57D that modvat credit cannot be denied merely because an exempt intermediate product emerges, so long as the final product is dutiable. The invocation of the extended period and imposition of penalty were also found unjustified, as the inputs had been declared and there was no basis for alleging suppression in the circumstances. The Departmental reference was treated as misconceived in view of the finality of the Tribunal's order.

Conclusion: Modvat credit was held admissible, the extended period and penalty were not justified, and the Department's reference application was rejected as misconceived.

Final Conclusion: The decision upheld the assessee's entitlement to modvat benefit on the disputed inputs and left no scope for the Department to reopen the Tribunal's earlier order by way of reference.

Ratio Decidendi: Inputs used in the manufacture of an intermediate product that becomes an integral component of the dutiable final product qualify for modvat credit, and credit cannot be denied merely because the intermediate product is separately manufactured or exempt for captive consumption.

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