Manufacturer cannot take Modvat/Cenvat credit while claiming full SSI exemption under Notification 175/86; duty recovery upheld

SC held that the manufacturer may not simultaneously claim Modvat/Cenvat credit for certain products while availing full small-scale industry (SSI) exemption for others under Notification 175/86; recovery of duty on goods was upheld. The court ruled that a Larger Bench judgment is binding on a smaller Bench of the Tribunal, and a smaller Bench cannot refuse to follow or adopt a different view merely by expressing doubt about the Larger Bench's correctness.

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Issues:
1. Interpretation of Notification 175/86 regarding availing of full exemption and Modvat credit simultaneously.

Analysis:
The case involved the interpretation of Notification 175/86 concerning the simultaneous availment of full exemption and Modvat credit by a manufacturer for different specified goods. The assessee was engaged in manufacturing biscuits under two different brand names and had applied for Modvat benefit for biscuits manufactured on a job work basis. The Assistant Collector initially dropped the demand for duty, but the Collector (Appeals) held that simultaneous opt for goods of one heading and Modvat facility for another heading was impermissible. The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) referred to conflicting decisions in Faridabad Tools Pvt. Ltd. and Kharia Cement Works cases. The Larger Bench in Kamani Foods case overruled Faridabad Tools case, emphasizing the need to read Notification 175/86 as a whole and harmoniously construe its sub-clauses.

Further, the Kamani Foods case highlighted that the manufacturer's choice between Modvat Scheme and Notification 175/86 was crucial, as there was no one-to-one correlation between inputs and final products under the Modvat Scheme. The Tribunal's decision in Kharia Cement Works was deemed more appropriate and in line with the department's understanding. It was emphasized that judicial propriety required adherence to the Larger Bench's judgment when it holds the field, and the CEGAT should have followed the Kamani Foods case instead of Faridabad Tools case.

Ultimately, the Supreme Court affirmed the view expressed in the Kamani Foods case, declaring the contrary view in the Faridabad Tools case as incorrect. The appeal was allowed without any order as to costs, settling the issue of interpretation of Notification 175/86 regarding the simultaneous availment of full exemption and Modvat credit by manufacturers for different specified goods.

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