Modvat credit on branded goods did not bar SSI exemption for unbranded clearances, while manufacture scrap remained dutiable on clearance.

Availing Modvat credit on branded goods did not, by itself, disentitle the assessee from claiming small-scale industry exemption on separately cleared unbranded goods; the exemption remained available for the unbranded clearances. Scrap arising during manufacture was treated as dutiable on clearance, but liability was confined to the proportion linked to the dutiable branded turnover, with cum-duty benefit to be applied in computation. The note confirms that mixed clearances may coexist with SSI exemption, while scrap generated in manufacture is taxable to the extent supported by the relevant factual turnover pattern.

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Issues: (i) Whether availing Modvat credit on branded goods disentitled the assessee from claiming small-scale industry exemption on other unbranded clearances; (ii) Whether duty was payable on scrap arising in the course of manufacture and, if so, to what extent.

Issue (i): Whether availing Modvat credit on branded goods disentitled the assessee from claiming small-scale industry exemption on other unbranded clearances.

Analysis: The unbranded clearances were separately exempted while duty was paid on branded clearances for which credit was taken. The decision of the Tribunal treating such a combination as permissible was followed, and the departmental objection that credit availed on one category of goods would defeat exemption on the others was rejected.

Conclusion: The assessee remained entitled to the small-scale industry exemption on the unbranded clearances.

Issue (ii): Whether duty was payable on scrap arising in the course of manufacture and, if so, to what extent.

Analysis: Scrap arising from manufacture was treated as dutiable on clearance. Since branded electric motors formed only 5% of the total turnover, duty on the diverted scrap was restricted to the corresponding proportion, and cum-duty benefit was directed to be given while computing liability.

Conclusion: Duty was payable on the scrap, but only to the extent of 5% of the quantity cleared, with cum-duty benefit.

Final Conclusion: The departmental appeals succeeded only in part on the scrap issue, while the challenge to the small-scale exemption failed, and the cross-objections were dismissed.

Ratio Decidendi: Availing credit on one category of goods does not by itself negate small-scale exemption for separately exempt clearances, but scrap generated in manufacture is dutiable on clearance, subject to the factual extent of the related dutiable turnover and cum-duty computation.

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