Separate manufacturing units and exemption eligibility: Modvat Credit in one unit did not defeat exemption for the other unit.

A manufacturer with two independent units could claim exemption for one unit even though the other unit availed Modvat Credit and paid duty. The exemption under Notification No. 4/97-C.E. depended on non-availment of credit on inputs used in the exempted goods, and the record did not show any such credit was taken in the plastic container unit. The units were distinct, and their clearances could not be clubbed without a legal basis, so the exemption could not be denied to the exempting unit.

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Issues: Whether a manufacturer having two independent units could claim exemption from duty in one unit while availing Modvat Credit and paying duty in the other unit.

Analysis: The exemption under Notification No. 4/97-C.E. was conditional upon non-availment of credit on inputs used in the manufacture of the exempted goods. The record did not show that any such credit had been taken in the unit manufacturing plastic containers. The mere fact that Modvat Credit was availed in the other unit manufacturing different goods did not, by itself, make the exempting unit ineligible for the notification. The distinction between the two units was material, and their clearances could not be treated as one for denying the exemption in the absence of a legal basis for clubbing.

Conclusion: The exemption could not be denied to the unit manufacturing plastic containers merely because another unit of the same assessee was clearing goods on duty and availing Modvat Credit; the issue was decided in favour of the assessee.

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