MODVAT credit on inputs for intermediate PVC ink required fresh examination under Rule 57D(2) and remand.

Rule 57D(2) preserved MODVAT credit on inputs used in making an intermediate product that emerges during manufacture of the final product, even if that intermediate product is exempt or chargeable to nil duty. On that basis, credit on inputs used to manufacture PVC ink, later used for printing PVC film and sheeting, required fresh examination rather than outright denial. The record also called for reconsideration in light of the Madras High Court ruling on similar credit claims. The matter was therefore remanded for a fresh decision in accordance with law after hearing the assessee.

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Issues: Whether MODVAT credit on inputs used in the manufacture of PVC ink, which was later used for printing PVC film and sheeting, was admissible under Rule 57D(2) of the Central Excise Rules, 1944, and whether the matter required reconsideration in the light of the Madras High Court ruling.

Analysis: Rule 57D(2) protects credit on inputs where an intermediate product comes into existence during the manufacture of the final product, even if such intermediate product is exempt or chargeable to nil duty. The denial of credit by the lower authority proceeded on the view that PVC ink was not such an intermediate product. The record showed that the issue had to be examined with reference to the Madras High Court decision on admissibility of credit in similar circumstances, which supported the assessee's case at least prima facie. In view of that binding legal position, the earlier order required fresh examination.

Conclusion: The assessee was entitled to reconsideration of its claim for MODVAT credit, and the denial of credit was not finally sustained. The matter was remanded for fresh decision in accordance with law after hearing the assessee.

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