Modvat credit survives exemption for an intermediate product when inputs are used to make the dutiable final product.

Modvat credit on inputs used to manufacture Grauvre Printing Cylinder remained admissible because the cylinder was only an intermediate product captively consumed in producing dutiable printed laminated plastic film. The exemption applicable to the intermediate cylinder did not defeat credit where the inputs were ultimately used in the manufacture of the dutiable final product. The earlier final order in the same assessee's case, applying Rule 57D(2), was treated as binding on the Revenue. Credit was therefore allowed and the Revenue's challenge failed.

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Issues: Whether Modvat credit on inputs used in the manufacture of Grauvre Printing Cylinder was admissible when the cylinder was captively consumed in the manufacture of dutiable printed laminated plastic film, though the cylinder itself was exempt from duty.

Analysis: Grauvre Printing Cylinder was not the final product in the relevant setting, but an intermediate product consumed within the factory for producing the dutiable final product. The earlier final order in the same assessee's case had already held that where an intermediate product comes into existence and is captively used, Modvat credit on the inputs used in its manufacture remains admissible under Rule 57D(2). That view bound the Revenue, and the exemption applicable to the intermediate product did not defeat credit when the inputs were ultimately used for the dutiable finished goods.

Conclusion: Modvat credit on the inputs was admissible, and the Revenue's challenge failed.

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