1994 (1) TMI 109 - AT - Central Excise

Summary

Issues Involved:
1. Simultaneous availing of Modvat Credit and complete exemption from duty.
2. Interpretation of Notification 175/86 regarding exemptions for small scale industrial units.
3. Applicability of Modvat Credit under Rule 57A.

Summary:

1. Simultaneous Availing of Modvat Credit and Complete Exemption from Duty:
The matter concerns whether a manufacturer can simultaneously avail Modvat Credit for certain specified goods and complete exemption from duty for other specified goods under Notification 175/86 dated 1-3-1986. The Tribunal examined previous decisions, including the Special Bench's ruling in Kharia Cement Works v. Collector of C. Ex., which held that if a manufacturer avails Modvat Credit in one factory, they are ineligible for full exemption for goods cleared from another factory.

2. Interpretation of Notification 175/86:
The Tribunal analyzed sub-clauses (i) and (ii) of clause (a) of para 1 of Notification 175/86. Sub-clause (i) allows a 75% duty exemption or 10% ad valorem for manufacturers availing Modvat Credit under Rule 57A, while sub-clause (ii) provides full duty exemption for those not availing Modvat Credit. The Tribunal emphasized that the notification distinguishes between manufacturers who avail Modvat Credit and those who do not, and this distinction applies to the manufacturer as a whole, not individual factories.

3. Applicability of Modvat Credit under Rule 57A:
The Tribunal concluded that the exemption levels in Notification 175/86 are fixed based on whether the manufacturer avails Modvat Credit. If a manufacturer opts for Modvat Credit for certain goods, they must adhere to the exemption level prescribed for such manufacturers. The Tribunal also referenced clarifications from the Ministry of Finance, which stated that simultaneous availing of Modvat for some products and full exemption for others is not permissible. The Tribunal upheld the interpretation that full exemption under Notification 175/86 is not available if Modvat Credit is availed for any specified goods.

The Tribunal's decision aligns with the ruling in Kharia Cement Works and the department's understanding, affirming that manufacturers cannot simultaneously benefit from Modvat Credit and full duty exemption under Notification 175/86.