Modvat - Clarification regarding option and withdrawal - Central Excise - 22/27/86-TRU

Modvat - Clarification regarding option and withdrawal F. No. B. 22/27/86-TRU Dated 20-6-1986 Government of India Ministry of Finance (Department of Revenue) New Delhi Subject : Modvat - Clarification regarding option and withdrawal The undersigned is directed to invite attention to the references that have been received from the Collectors of Central Excise regarding permitting the small scale units to opt for or opt it of the Modvat Scheme. In particular the issues raised are, (i) Whether a small scale unit which had initially opted for payment of excise duty and availing of Modvat can be allowed to opt out of the same and avail of full exemption upto the permissible limits, and (ii) Whether a small scale unit which had initially opted for availing of full exemption upto Rs. 15 lakhs or Rs. 30 lakhs, as the case may be, may be allowed to commence payment of duty of excise on the specified goods before the full exemption limits are exhausted and avail of Modvat. 2. The issues raised have been examined. The scheme of exemption under notification No. 175/86-C.E., dated 1-3-1986 provides for an integrated method of computation of value of clearances made in financial year. As per the notification, if a manufacturer avails a Modvat relief in respect of the specified goods, then the concessional rate of duty of normal duty less 10% ad valorem would be applicable. Keeping in view the legal position as above and the act that there is no one-to-one correlation between the inputs and the final products under the Modvat scheme it would not be possible to permit a manufacturer to opt out of Modvat scheme once he has exercised the option of paying duty (and to avail of Modvat) at the beginning of the financial year in respect of any specified goods. The manufacturer will have the option to go out of Modvat and avail of full exemption, subject to being eligible, only in the next financial year. 3. As regards the issues raised at (ii) above, it is expected that normally a small scale unit would exercise the option of paying of duty and availing of Modvat at the beginning of the financial year. However, in cases where the manufacturer decides to exercise this option later (and before exceeding the full exemption limits) then he may be permitted to do so. In such cases the assessments regarding clearances already made and for which full exemption was availed of, need not be reopened.