Intermediate product treatment under Modvat credit turns on captive use in manufacture, not on separate dutiable clearance.

Rule 57C applies where the final product is exempt, whereas Rule 57D(2) applies where an intermediate product is exempt. Inserts and tips consumed captively in the manufacture of hand tools within the factory remained intermediate products for Modvat purposes, even though most of the same goods were separately cleared on duty. Their separate clearance did not change the character of the portion used in manufacture, and the cited precedent was held to concern a different factual situation. The note states that no referable question of law arose on availability of Modvat credit and that the reference application was liable to be dismissed.

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Issues: Whether inserts and tips used in the manufacture of hand tools were intermediate products so as to attract Rule 57D(2) of the Central Excise Rules, and whether any question of law arose for reference in relation to the availability of Modvat credit.

Analysis: Rule 57C applies where the final product is exempted, whereas Rule 57D(2) applies where the intermediate product is exempt. The nature of the product's use determines whether it is an intermediate product, and goods consumed in the manufacture of the finished product within the factory remain intermediate products even if a large portion of the same goods is also cleared on payment of duty. The fact that most of the inserts and tips were separately cleared on duty did not prevent the portion used captively in manufacture from being treated as intermediate product. The cited precedent concerned a different factual situation and did not assist the applicant.

Conclusion: The inserts and tips used captively were intermediate products, no referable question of law arose, and the reference application was liable to be dismissed.

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