Modvat credit and exemption choice for job workers; duty-paid clearance defeated further demand and extended limitation.

Rule 96(E) of the Central Excise Rules, 1944 was read as not compelling a job worker to adopt Notification No. 6/2000-C.E. where exemption was not chosen. The job worker could clear the doubled yarn on payment of duty and use available Modvat credit for that purpose, so denial of credit was unsustainable. Because duty had already been discharged on the processed goods, a further demand on the principal manufacturer was unwarranted, and the extended period could not be invoked absent evidence of intent to evade duty. The impugned appellate orders were set aside and the appeals allowed with consequential relief.

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Issues: (i) Whether a job worker was bound to avail the exemption under Notification No. 6/2000-C.E. and, if not availed, could clear the doubled yarn on payment of duty by utilising Modvat credit; (ii) whether duty demand against the principal manufacturer and invocation of the longer period were sustainable.

Issue (i): Whether a job worker was bound to avail the exemption under Notification No. 6/2000-C.E. and, if not availed, could clear the doubled yarn on payment of duty by utilising Modvat credit.

Analysis: Rule 96(E) of the Central Excise Rules, 1944 was read as permitting removal of yarn for further processing without making it obligatory for the principal manufacturer or the job worker to adopt a particular exemption route. The job worker had manufactured the finished product and discharged duty on clearance. Once the exemption was not opted for, there was no legal basis to deny utilisation of available Modvat credit on the inputs for payment of duty on the finished goods.

Conclusion: The issue was decided in favour of the assessee. The job worker was entitled to pay duty on the finished goods and avail Modvat credit, and denial of credit was unsustainable.

Issue (ii): Whether duty demand against the principal manufacturer and invocation of the longer period were sustainable.

Analysis: Since duty on the processed goods had already been discharged by the job worker, there was no justification for a further demand on the principal manufacturer. The record also did not show an intention to evade duty, particularly when duty had in fact been paid. On those facts, the extended limitation period could not be invoked.

Conclusion: The issue was decided in favour of the assessee. The duty demand on the principal manufacturer and the invocation of the longer period were not sustainable.

Final Conclusion: The impugned appellate orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A job worker clearing manufactured goods on payment of duty is not bound to adopt a conditional exemption if not opted for, and where duty has been paid without evidence of intent to evade, denial of Modvat credit and invocation of the extended period are not justified.

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