SSI exemption and Modvat credit: separate accounts and lack of linkage defeated the demand and penalty.

SSI exemption was not lost merely because the assessee manufactured both own-brand and third-party brand goods. The decisive factor was that separate accounts were maintained for the two categories and the inputs for each were separately recorded, while the Revenue produced no evidence that Modvat credit had been taken on inputs used for exempt clearances. On those facts, the mere coexistence of exempt and non-exempt manufacture did not establish misuse of credit or breach of exemption conditions, and the demand and penalty were unsustainable.

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Issues: Whether the assessee was disentitled to small scale industry exemption on the ground that it had allegedly availed Modvat credit while manufacturing exempted goods, and whether the Revenue could sustain demand and penalty in the absence of evidence linking the credit to the exempted clearances.

Analysis: The assessee maintained separate accounts for own-brand goods and brand-name goods of others, and the inputs used for the two sets of goods were separately recorded. No evidence was produced to show that Modvat credit had been taken in respect of inputs used for the goods cleared under SSI exemption. The mere existence of both categories of manufacture did not, by itself, establish misuse of credit or violation of the exemption conditions. In these circumstances, the appellate authority's reasoning required no interference.

Conclusion: The assessee was not denied SSI exemption on the facts found, and the demand and penalty could not be sustained.

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