SSI exemption and Modvat credit: duty-paid clearances are not hit by Rule 57C when exemption is not availed.

An SSI unit may choose between claiming the applicable exemption and paying duty on the final product while availing Modvat credit. Where the unit elects to pay duty instead of taking exemption, Rule 57C of the Central Excise Rules, 1944 does not bar credit on such clearances because the goods are treated as duty-paid rather than exempted. The legal position was applied consistently with earlier authority, and the questions of law were answered in favour of the assessee and against the Revenue.

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Issues: Whether an SSI unit could choose between availing exemption and paying duty with Modvat credit, and whether Rule 57C of the Central Excise Rules, 1944 applied to clearances made on payment of duty despite availability of exemption.

Analysis: The questions were answered by following the earlier decision holding that an SSI unit had the option either to claim the exemption under the applicable notification or to pay duty on the final product while taking Modvat credit. On that basis, the bar under Rule 57C was not attracted to such clearances, because the assessee had elected to pay duty instead of availing the exemption.

Conclusion: The questions of law were answered against the Revenue and in favour of the assessee.

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