Rule 57C barred Modvat credit where final products were cleared duty-free under an exemption notification and Chapter X procedure.

Rule 57C of the Central Excise Rules, 1944 bars Modvat credit where the final product is exempt from the whole of duty or liable to nil duty. As the final product was cleared without payment of duty under Notification No. 191/87 and Chapter X procedure, it was treated as exempted for this purpose. The cited precedent applying Rule 57C to such clearances was followed, and the contrary rule framework relied on by the assessee was held inapplicable. Modvat credit on the inputs was therefore not admissible, and disallowance of the credit was upheld.

---

---

Issues: Whether Modvat credit on inputs was admissible when the final product was cleared without payment of duty under Chapter X procedure and an exemption notification, or whether Rule 57C barred such credit.

Analysis: Rule 57C of the Central Excise Rules, 1944 prohibits Modvat credit where the final product is exempt from the whole of the duty of excise or is chargeable to nil rate of duty. The final product in the present case was cleared without payment of duty under Notification No. 191/87 and Chapter X procedure, and was therefore treated as exempted from duty. The reasoning in the cited precedent holding that such clearances attract the bar under Rule 57C was applied, and the contrary reliance placed on a different rule framework was held to be inapplicable.

Conclusion: Modvat credit was not admissible, and the disallowance of credit was upheld against the assessee.

---