Modvat credit on intermediate inputs allowed where caps were captively used in dutiable lamp manufacture.

Eligibility to Modvat credit depended on the use of aluminium strips in manufacturing caps that were captively consumed in producing dutiable GLS lamps above 60 volts. Goods used as intermediate inputs within the factory had to be assessed by their stage of manufacture and actual captive use, not by the fact that some similar caps were also sold separately. Because the lamps were cleared on payment of duty and the caps were used in that dutiable production stream, denial of credit on the ground that the caps were final exempt products was unsustainable. Modvat credit was therefore available on the aluminium strips.

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Issues: Eligibility to Modvat credit on aluminium strips used in the manufacture of caps which were captively consumed in the manufacture of dutiable GLS lamps above 60 volts.

Analysis: The caps were used as inputs in the manufacture of GLS lamps above 60 volts, which were admittedly cleared on payment of duty. Where goods produced in one stream of manufacture are used captively in the manufacture of another final product, their character as final or intermediate products depends on the stage of manufacture and the relevant use within the assessee's factory. The fact that some caps were also sold separately did not alter their status for the purpose of the disputed captive consumption. On that footing, the denial of credit on the premise that caps were final exempt products was unsustainable.

Conclusion: The assessee was entitled to Modvat credit on aluminium strips used in the manufacture of caps captively consumed in the manufacture of GLS lamps above 60 volts.

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