Modvat credit on final products cleared to a 100% export unit remains usable when Rule 57F(4) applies.

Modvat credit on inputs used to manufacture goods cleared to a 100% export oriented unit could not be denied where those goods were themselves declared as final products under Rule 57G. The earlier Asian Paints decision was held inapplicable on the facts because the goods cleared to the export unit were not merely intermediate products. The proviso to Rule 57F(4) therefore continued to govern utilisation of the credit, and the assessee remained entitled to use it for duty on similar final products cleared for home consumption. Denial of credit on the stated ground was not justified.

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Issues: Whether Modvat credit taken on inputs used in the manufacture of goods cleared to a 100% export oriented unit could be utilised for payment of duty on similar final products cleared for home consumption, and whether denial of credit under Rule 57F(4) was justified.

Analysis: The declaration filed under Rule 57G included dry flux and mild steel wire as final products. The reliance on the earlier decision in Asian Paints was held to be inapplicable on the facts. Since the goods cleared to the 100% export oriented unit were treated as final products and not merely intermediate goods, the premise for denying the credit was incorrect. The proviso under Rule 57F(4) therefore continued to govern the assessee's entitlement to utilise the credit.

Conclusion: The credit could not be denied on the ground stated in the notice, and the assessee was entitled to the benefit of Rule 57F(4).

Ratio Decidendi: Where the goods cleared to a 100% export oriented unit are themselves declared as final products, Modvat credit on inputs used in their manufacture cannot be denied on the footing that they are merely intermediate products, and the relevant proviso permitting utilisation of such credit applies.

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