Modvat credit allowed on inputs for an exempt intermediate product where the final product remained dutiable.

Modvat credit was held admissible on inputs used to manufacture carbon ink, which was captively consumed as an ingredient in making carbon paper. The exemption attaching to the intermediate carbon ink did not disqualify credit under the Modvat scheme because the final product was dutiable. In the absence of any contrary authority, the departmental objection to the credit was rejected.

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Issues: Whether Modvat credit on inputs used in the manufacture of carbon ink, an intermediate product captively consumed in the manufacture of carbon paper, was admissible when the intermediate product was exempt from duty but the final product suffered duty.

Analysis: The inputs were used in the manufacture of carbon ink, and that carbon ink was itself used as an ingredient in the manufacture of carbon paper. The relevant Modvat scheme permitted credit on such goods, and the exemption attaching to the intermediate product did not disqualify credit where the final product was dutiable. No contrary authority was shown to justify interference with the order granting credit.

Conclusion: Modvat credit was admissible, and the department's objection failed.

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