Exemption notification benefit survives mistaken duty payment, but Modvat credit on inputs used for exempt clearances must be reversed.

Notification No. 75/87-C.E. granted full exemption for the first clearance slab up to the prescribed aggregate value, followed by a concessional rate for the next slab. An assessee who declared an intention to claim the notification did not forfeit that benefit merely by mistakenly paying duty at 15% on clearances that were otherwise within the exempt first slab. Where the exemption was available, Modvat credit taken on inputs used in the exempt clearances could not be retained and had to be reversed to that extent.

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Issues: Whether the assessee remained entitled to the benefit of Notification No. 75/87-C.E. for the first clearance slab despite having paid duty at 15% on such clearances, and whether any Modvat credit taken in respect of inputs used in the exempted clearances was required to be reversed.

Analysis: The notification granted full exemption for the first clearances up to the prescribed aggregate value and a limited concession for the next slab. The assessee had claimed the notification in its declaration, showing an intention to avail the exemption, but had erroneously paid duty at 15% even on the first exempt slab. Such payment did not amount to opting out of the notification, because the assessee was otherwise eligible for the exemption and the mistaken payment was inconsistent with the rate structure of the notification. Since the assessee had also availed Modvat credit on inputs used for the goods cleared in the exempt slab, that credit could not be retained once the exemption was allowed.

Conclusion: The assessee was held entitled to the benefit of Notification No. 75/87-C.E. for the first clearances up to Rs. 15 lakhs, but was directed to reverse the Modvat credit attributable to the final goods cleared in that slab.

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