Modvat credit and duty drawback: export under the drawback scheme did not by itself bar input credit.

Modvat credit on duty-paid inputs could not be denied merely because the finished goods were exported under the Duty Drawback Scheme. The governing drawback rules contained no automatic bar on such credit, and the relevant provisions indicated that the drawback computation did not include the central excise duty element already available as Modvat credit. The Board's circular similarly clarified that where only the customs portion of drawback is claimed, the rule against refund of unutilised credit does not prevent credit on inputs used in exported products. On that basis, the disallowance was held unsustainable and the demand was set aside.

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Issues: Whether Modvat credit of duty paid on inputs could be denied merely because the finished goods manufactured from those inputs were exported under the Duty Drawback Scheme.

Analysis: The available drawback scheme did not contain any provision that automatically disallowed Modvat credit solely on the ground that drawback had been claimed on exported goods. Rule 3 of the Drawback Rules and the relevant provisos dealing with the All Industry Rate indicated that the drawback calculation did not include the element of additional customs duty or central excise duty available as Modvat credit. The Board's circular also clarified that where only the customs portion of drawback is claimed, the rule against refund of unutilised credit does not bar credit in respect of duty paid on inputs used in exported products.

Conclusion: Modvat credit could not be denied on the basis that drawback had been claimed on the exported goods; the disallowance was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The appeals succeeded and the demand denying Modvat credit was annulled.

Ratio Decidendi: Drawback claimed on exported goods does not, by itself, bar Modvat credit on duty paid inputs unless the governing rules expressly provide such exclusion.

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