Modvat credit on export goods cannot be denied merely because the finished products were exported and not dutiable.

Modvat credit on duty-paid inputs used in the manufacture of goods exported out of India could not be denied merely because the exported final products were not liable to duty. The Modvat scheme recognised credit on inputs used in or in relation to manufacture and allowed adjustment of accumulated credit where final products were exported. Rule 57C of the Central Excise Rules, 1944 applied to final products cleared for domestic consumption and not to exported goods, so it was inapplicable on these facts. The conclusion was in favour of the assessee.

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Issues: Whether Modvat credit on inputs used in the manufacture of final products exported out of India could be denied on the ground that the exported goods were not liable to duty and Rule 57C of the Central Excise Rules, 1944 applied.

Analysis: The Modvat scheme permits credit on duty paid inputs used in or in relation to manufacture, and also recognises refund of accumulated credit where the final product is exported. Rule 57C applies where final products are cleared for domestic consumption and not to exported goods. Since the finished goods were exported, denial of credit merely because no duty was payable on the exports was not justified.

Conclusion: Modvat credit could not be denied on exported final products, and Rule 57C of the Central Excise Rules, 1944 was inapplicable; the finding was in favour of the assessee.

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