Modvat credit for export goods under bond remains allowable despite exempted-product objections

Modvat credit on inputs used in goods exported under bond could not be denied merely because the final goods were treated as exempted or non-dutiable. Rule 57F(13) protected the credit in export situations, and the interaction of Rule 57C and Rule 57CC could not be applied to defeat the export incentive. The document notes that export policy under the Central Excise Rules, 1944 supports relief from domestic levy for exported goods and the inputs used in them, whether export is under bond, rebate, or drawback arrangements. On that basis, denial of credit was unsustainable and the input credit remained allowable.

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Issues: Whether Modvat credit on inputs used in the manufacture of goods exported under bond could be denied on the ground that the final goods were treated as exempted or non-dutiable.

Analysis: The goods were exported under bond, and the credit claim was considered in the context of the export-linked provisions of the Central Excise Rules, 1944. Rule 57F(13) protected credit in cases of export, and the interaction of Rule 57C and Rule 57CC could not be used to defeat the export benefit. The reasoning proceeded on the basis that export of goods is encouraged by relieving exported products and the inputs used therein from domestic levies, whether the goods are exported under bond or under rebate or drawback arrangements.

Conclusion: The denial of Modvat credit was not sustainable, and the credit on inputs used in the exported goods was allowable in favour of the assessee.

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