Modvat credit on inputs for other products did not bar exemption under Notification No. 5/98-CE.

Notification No. 5/98-CE exemption was held not to be denied merely because the manufacturer had availed Modvat credit on inputs used for other products made in the same factory. Condition No. 10 was interpreted as barring credit only on the specified exempt product or on any other final product manufactured in that factory, not on inputs linked to different products. As the department did not show that credit had been taken on any other final product manufactured in the same factory, the condition was not attracted and the exemption remained available.

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Issues: Whether the benefit of Notification No. 5/98-CE could be denied on the ground that the manufacturer had availed Modvat credit on inputs used in relation to other products manufactured in the same factory, and whether condition No. 10 barred such credit.

Analysis: The Notification granted exemption subject to condition No. 10, which required that the manufacturer not avail credit of duty paid on the products specified in the relevant entry or on any other product manufactured in the same factory. The decisive question was the scope of the phrase used in the condition. The condition was construed to refer to credit taken on any other final product manufactured in the same factory, and not to credit taken on inputs merely because such inputs were used in relation to other products. Since the department did not establish that credit had been taken on any other product manufactured in the same factory, the restriction in the notification was not attracted.

Conclusion: The exemption under Notification No. 5/98-CE could not be denied on the basis relied upon by the department, and the appeal succeeded.

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