SSI exemption survives where Cenvat credit is taken only on branded third-party clearances outside the exemption scheme.

SSI exemption was not denied merely because the assessee availed Modvat/Cenvat credit on goods manufactured for third parties under their brand names. The applicable notifications separately excluded such branded goods from both the exemption scheme and the aggregate clearances computation, and the credit bar applied only to the goods for which SSI exemption was claimed, not to non-exempt branded clearances. The earlier view under Notification No. 175/86 was treated as inapplicable because the later notifications used materially different conditions and exclusions. On the admitted facts, credit had not been taken in relation to inputs for the assessee's own exempt clearances, so the denial of SSI exemption, demand and interest were unsustainable.

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Issues: Whether the assessee was disentitled to small-scale industry exemption on its own clearances because it availed Modvat/Cenvat credit in respect of goods manufactured for third parties bearing their brand names.

Analysis: The relevant notifications separately excluded clearances of goods bearing another person's brand name from the exemption scheme and from the computation of aggregate value of clearances. The condition barring credit related to the specified goods cleared for home consumption for which the exemption was claimed, and not to branded goods cleared outside the exemption scheme. The earlier decision dealing with Notification No. 175/86 was found inapplicable because the later notifications contained materially different conditions and exclusions. On the admitted facts, the assessee had not availed credit on inputs used for the exempt clearances of its own goods.

Conclusion: The denial of SSI exemption was unsustainable and the assessee was entitled to the benefit of the relevant notifications.

Final Conclusion: The demand, interest and consequential denial of exemption were set aside and the appeal was allowed.

Ratio Decidendi: Where an exemption notification excludes branded goods of third parties from both the exemption and the clearance-value computation, availing Modvat/Cenvat credit for such non-exempt goods does not by itself bar SSI exemption on the assessee's own eligible clearances unless the credit is availed for the exempt goods themselves.

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