Small scale exemption and Modvat credit can coexist for specified goods if input credit is reversed under the Larger Bench view.

A manufacturer availing small scale exemption under Notifications 175/86 and 1/93 could simultaneously take Modvat credit and full exemption for the same specified goods, provided Modvat credit on inputs used in duty-free goods was reversed. The Tribunal followed the Larger Bench ruling and also noted that small scale exemption and Modvat credit could be availed for different goods. The reference was answered in favour of the assessee, and the issue was treated as settled by the earlier Larger Bench decision.

---

---

Issues: Whether an assessee availing small scale exemption under Notifications 175/86 and 1/93 could simultaneously avail Modvat credit and full exemption in respect of the same specified goods, and whether goods excluded from those notifications could still qualify for Rule 57A benefit.

Analysis: The reference was answered by following the Larger Bench decision which held that, subject to reversal of Modvat credit taken on inputs used in the manufacture of duty-free goods, a manufacturer could avail both Modvat credit and full duty exemption under the applicable small scale exemption notification in respect of the same specified goods. The Tribunal also noted that availing small scale exemption and Modvat credit in respect of different goods was permissible, and that the issue stood settled by the earlier Larger Bench ruling.

Conclusion: The assessee was entitled to the benefit of the notifications and Modvat credit in the manner indicated by the Larger Bench, and the reference was answered in favour of the assessee.

---