Modvat credit on job-worker inputs is admissible when intermediate-product conditions are met and duty on waste is duly paid.

Modvat credit was held admissible where inputs were lawfully sent directly to a job worker for manufacture of intermediate products and the prescribed conditions under the relevant rules and notifications were satisfied. Duty on waste generated at the job worker's premises was also treated as properly discharged where the assessee paid such duty before taking credit. On that basis, the demand, penalty, and interest did not survive, and consequential relief followed.

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Issues: Whether the appellant was entitled to avail Modvat credit on inputs sent directly to a job worker for manufacture of intermediate products, and whether duty paid on waste generated at the job worker's factory was proper.

Analysis: Rule 57F(4) permits inputs to be sent outside the factory for manufacture of intermediate products and returned for use in the final product. Rule 57F(5)(ii) further provides that waste need not be returned if duty payable on such waste is paid. The appellant had paid duty on the waste generated at the job worker's premises and had taken credit only after such duty payment. Rule 57J also allows credit in respect of inputs used for manufacture of intermediate products, and the requirements of the relevant notifications were held to have been complied with. The objections raised in the adjudication order were found to be satisfactorily answered.

Conclusion: The appellant was entitled to Modvat credit, and the duty paid on waste generated at the job worker's factory was correctly discharged.

Final Conclusion: The demand, penalty, and interest did not survive, and the appeal was allowed with consequential relief.

Ratio Decidendi: Where inputs are lawfully sent to a job worker for manufacture of intermediate products and the prescribed conditions are satisfied, Modvat credit is admissible and duty on waste generated at the job worker's premises may validly be paid by the assessee.

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