Modvat credit for inputs used in exempt intermediate products was upheld where miniature bulbs were captively consumed in torch manufacture.

Modvat credit on inputs used to make miniature bulbs was admissible where the bulbs were captively consumed as intermediate products in the manufacture of torches. Rule 57C did not apply because the dispute was not a simple denial of credit on the ground that the final product was exempt. Rule 57D(2) governed intermediate products arising during manufacture and exempted or chargeable to nil duty, and under that rule credit on inputs used for such intermediate goods could not be denied or varied. The same issue had been decided earlier in the appellant's own case, and the denial of credit was unsustainable.

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Issues: Whether Modvat credit on inputs used in the manufacture of miniature bulbs was admissible when such bulbs were captively consumed as intermediate products in the manufacture of torches, notwithstanding exemption from duty on the captively consumed bulbs.

Analysis: Miniature bulbs captively consumed in the manufacture of torches constituted intermediate products. Rule 57C was inapplicable because the dispute did not concern denial of credit merely on the footing that the final product was exempted. Rule 57D(2) applied where an intermediate product came into existence in the course of manufacture of the final product and was exempted or chargeable to nil rate of duty. On that basis, credit on inputs used for such intermediate product could not be denied or varied. The same issue had also been decided earlier in the appellant's own case in the same manner.

Conclusion: Modvat credit was admissible and the denial of credit was unsustainable; the appeal succeeded.

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