Modvat credit protected for captive intermediate products; declared gas mixtures remained covered by the filing and Rule 57C did not apply.

The declaration under Rule 57G was held wide enough to cover mixtures of fluoron 11 and fluoron 12, because the mixtures consisted only of the declared gases in specific proportions without any new ingredient and remained chlorofluoro hydrocarbons. Modvat credit on inputs used to manufacture fluoron 11 and fluoron 12 was also allowed: the gases were treated as intermediate products captively consumed in making the duty-paid final mixtures, so Rule 57D protected the credit and Rule 57C did not bar it. The demand was therefore unsustainable and the assessee was entitled to the claimed credit.

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Issues: (i) Whether the mixtures of fluoron 11 and fluoron 12 were covered by the declaration filed under Rule 57G. (ii) Whether Modvat credit on inputs used in the manufacture of fluoron 11 and fluoron 12 was barred by Rule 57C or protected by Rule 57D when those gases were captively consumed in making the mixtures.

Issue (i): Whether the mixtures of fluoron 11 and fluoron 12 were covered by the declaration filed under Rule 57G.

Analysis: The declaration described chlorofluoro hydrocarbons of methane as the final product and disclosed fluoron 11 and fluoron 12 as declared products. The mixtures were only the same gases combined in specific proportions, with no new ingredient added or removed, and were still chlorofluoro hydrocarbons. The classification entries also showed the mixtures as manufactured products. The declaration was therefore wide enough to cover the mixtures.

Conclusion: The mixtures of fluoron 11 and fluoron 12 were covered by the declaration.

Issue (ii): Whether Modvat credit on inputs used in the manufacture of fluoron 11 and fluoron 12 was barred by Rule 57C or protected by Rule 57D when those gases were captively consumed in making the mixtures.

Analysis: The inputs and final products were specified under Rule 57A, the gases were used within the factory, and the mixtures were cleared on payment of duty. Rule 57D protects credit where an intermediate product emerges in manufacture and is exempt or nil-rated, provided it is used within the factory in the manufacture of the final product. Since fluoron 11 and fluoron 12 functioned as intermediate products for the mixtures, Rule 57D applied and Rule 57C did not bar credit.

Conclusion: Modvat credit was admissible and Rule 57C was inapplicable.

Final Conclusion: The demand was unsustainable, the order under challenge was set aside, and the assessee was held entitled to the Modvat credit claimed.

Ratio Decidendi: Where declared inputs and final products are covered by the declaration, and an exempt captively consumed product is only an intermediate stage in the manufacture of a duty-paid final product, Modvat credit cannot be denied under Rule 57C and is protected by Rule 57D.

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