Deemed Modvat credit for small-scale units survives crossing the exemption threshold, but post-withdrawal credit needs separate verification.

A small-scale unit availing exemption under Notification No. 1/93-C.E. did not lose deemed Modvat credit merely because its clearances crossed the Rs. 75 lakhs threshold; the exemption character attached to the unit as a whole, so the higher clearances did not by themselves disqualify it from the credit benefit. However, credit claimed after 15-3-95, when the facility was withdrawn, required separate factual examination and fresh determination of eligibility after natural justice. The objection based solely on crossing the monetary limit was rejected, while the matter was remanded only for verification of post-withdrawal credit.

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Issues: (i) Whether a small-scale unit continuing to enjoy exemption under Notification No. 1/93-C.E. remained eligible for deemed Modvat credit after its clearances crossed the Rs. 75 lakhs limit. (ii) Whether the credit taken after 15-3-95, when the facility was withdrawn, required segregation and fresh determination.

Issue (i): Whether a small-scale unit continuing to enjoy exemption under Notification No. 1/93-C.E. remained eligible for deemed Modvat credit after its clearances crossed the Rs. 75 lakhs limit.

Analysis: The facility of deemed credit was extended to the unit as a whole and not merely to a part of its production. Eligibility for small-scale exemption was determined year-wise, and once the unit had been accepted as availing the exemption, the unit continued to retain that character even though clearances beyond Rs. 75 lakhs attracted full duty. On that basis, crossing the monetary limit did not by itself disqualify the unit from the benefit of deemed credit.

Conclusion: The unit was not denied deemed Modvat credit merely because its clearances exceeded Rs. 75 lakhs; this issue was decided in favour of the assessee.

Issue (ii): Whether the credit taken after 15-3-95, when the facility was withdrawn, required segregation and fresh determination.

Analysis: The record did not clearly show whether the deemed credit had been availed beyond 15-3-95, the date after which the facility was withdrawn. The matter therefore required factual segregation of the credit relatable to the post-withdrawal period, with a fresh decision on eligibility after following natural justice.

Conclusion: The matter was remanded to the adjudicating authority for limited reconsideration of credit taken after 15-3-95.

Final Conclusion: The substantive objection on cross of the Rs. 75 lakhs limit was rejected, but the case was sent back for limited verification of credit availed after withdrawal of the facility, and the lower orders were set aside to that extent.

Ratio Decidendi: A small-scale unit's entitlement to a deemed credit facility attached to the unit's status under the exemption notification and was not lost merely because clearances above the monetary threshold attracted full duty; however, credit availed after the withdrawal date had to be separately examined for eligibility.

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