Modvat credit on dutiable clearances did not forfeit exemption on separate exempt goods under Notification No. 4/97-C.E.

Availment of Modvat credit on inputs used for dutiable clearances did not by itself bar exemption under Notification No. 4/97-C.E. for separate goods cleared without duty, because the exemption condition targeted credit taken on inputs used in the exempt goods themselves. Where the credit was taken only for dutiable manufacture and there was no double benefit on the same goods, the exemption remained available. A later notification was treated as introducing a wider restriction only prospectively, confirming that the earlier notification did not impose that broader bar.

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Issues: Whether availment of Modvat credit on inputs used in the manufacture of dutiable clearances disentitled the assessee from claiming exemption under Notification No. 4/97-C.E. for goods cleared without payment of duty.

Analysis: The exemption condition required that no credit of duty paid on inputs used in the manufacture of the goods cleared under the notification should have been availed. The credit in question was not taken on inputs used for the exempt clearances, but on inputs used for goods cleared on payment of duty. There was no case of double benefit on the same goods, and the subsequent notification showed that a wider bar was introduced only later. On that basis, credit availed for dutiable goods did not destroy eligibility for exemption on separate exempt clearances.

Conclusion: The assessee remained entitled to the exemption under Notification No. 4/97-C.E., and the departmental appeal failed.

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