Modvat credit on inputs for intermediate carbon electrodes was admissible, with Rule 57C held inapplicable under Rule 57D(2).

Modvat credit on duty-paid inputs used to manufacture carbon electrodes was admissible where the electrodes were captively consumed in making the final excisable product, because the electrodes formed an intermediate product in the manufacturing stream. Rule 57C did not apply on those facts, and the claim fell within Rule 57D(2), which preserves credit when inputs are used in the course of manufacture of intermediate goods. A contrary authority was distinguished as involving goods not participating as intermediate products in the manufacturing process.

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Issues: Whether Modvat credit on duty-paid inputs used in the manufacture of carbon electrodes, which were captively consumed in the manufacture of aluminium, was barred by Rule 57C or was allowable under Rule 57D(2) as the carbon electrodes constituted an intermediate product.

Analysis: The inputs were used to manufacture carbon electrodes, and those electrodes were in turn used within the factory in the manufacture of the final excisable product. On that footing, the carbon electrodes were treated as an intermediate product in the manufacturing stream of the final product. The bar under Rule 57C was therefore inapplicable, and the case fell within the protective ambit of Rule 57D(2), which preserves credit where inputs are used in the course of manufacture of intermediate goods. The cited contrary authority was distinguished on its facts because it dealt with goods not participating in the manufacturing process as intermediate products.

Conclusion: Modvat credit was admissible and the appeals were allowed in favour of the assessee.

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