Modvat credit on common inputs remains admissible for mixed clearances when Rule 57CC compliance and debit of attributable credit are shown.

Modvat credit on common inputs used in both exempted and dutiable final products was held admissible where the manufacturer followed the Rule 57CC mechanism, paid the prescribed 8% amount, and debited the credit attributable to the exempted goods before clearance. Rule 57C does not defeat credit in such mixed-manufacture situations when the specific Rule 57CC procedure is complied with. The stated result was that credit on the disputed inputs was upheld in favour of the assessee and against the Revenue.

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Issues: Whether Modvat credit on common inputs used in manufacture of both exempted and dutiable final products was admissible when the manufacturer had paid the prescribed 8% amount and maintained no separate account of inputs.

Analysis: Rule 57C bars credit on inputs used in exempted final products, but Rule 57CC provides a specific mechanism where a manufacturer makes both dutiable and exempted goods and uses common inputs. The rule permits credit subject to payment of an amount equal to 8% of the price of the exempted final product, and the departmental circular clarified that credit remains admissible if the corresponding credit attributable to exempted goods is debited before removal. The position is supported by the settled view that Modvat provisions are to be applied so as not to defeat input duty relief on a technical construction.

Conclusion: The credit of duty on common inputs was admissible, and the question was answered in favour of the assessee and against the Revenue.

Final Conclusion: The appeal failed, and the assessee's entitlement to Modvat credit on the disputed inputs was upheld.

Ratio Decidendi: Where common inputs are used in both exempted and dutiable final products, Modvat credit cannot be denied if the manufacturer complies with the Rule 57CC mechanism and debits the attributable credit before clearance of the exempted goods.

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