Modvat credit on capital goods remained available despite exempt goods being manufactured alongside dutiable final products.

Rule 57R, as it stood from 1-3-1997, permitted Modvat credit on capital goods used in the manufacture of final products, and the later substitution by Notification No. 46/97-C.E. (N.T.) did not change that position for dutiable output manufactured during the intervening period. The presence of exempt plain reel hanks, grey fabrics, or intermediate products attracting nil rate did not by itself defeat credit entitlement where the capital goods were used for dutiable final products. The amendment could not be read to deny credit merely because exempt goods were also manufactured in the same period, and the Revenue's objection was rejected.

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Issues: Whether Modvat credit on capital goods was admissible for the period 1-3-1997 to 31-8-1997 when the assessee also manufactured exempt or nil-rated goods, in the light of Rule 57R of the Central Excise Rules and the later amendment by Notification No. 46/97-C.E. (N.T.) dated 1-9-1997.

Analysis: Rule 57R as it stood from 1-3-1997 permitted credit on capital goods used in the manufacture of final products, and the subsequent substitution of the words requiring exclusive use did not alter the position where the assessee's dutiable final products remained the relevant manufacture. The existence of exempt plain reel hanks or grey fabrics, and the emergence of intermediate products chargeable at nil rate, did not by itself defeat the credit entitlement. The Tribunal accepted the view that the amendment and the rule could not be read to deny credit on capital goods used for dutiable final products merely because some exempt goods were also manufactured during the intervening period.

Conclusion: Modvat credit on capital goods was held admissible, and the Revenue's challenge was rejected.

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