Modvat credit on Chapter X clearances remains admissible; Rule 57C does not apply to non-exempt duty-free removals.

Modvat credit on inputs remained available where final products were cleared under Chapter X on the strength of a CT-2 certificate without payment of duty, because such clearances were not treated as clearance of wholly exempt goods or goods chargeable to nil rate of duty. Earlier decisions had already settled that clearance under Chapter X or under bond is materially different from exempt clearances, so Rule 57C of the Central Excise Rules did not apply. The denial of credit was therefore unsustainable, and the credit was admissible.

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Issues: Whether Modvat credit on inputs is inadmissible when the final products are cleared under Chapter X on the strength of CT 2 certificate without payment of duty, and whether Rule 57C of the Central Excise Rules applies only to wholly exempt goods or goods chargeable to nil rate of duty.

Analysis: The Tribunal noted that the controversy was already settled by earlier decisions holding that clearance under Chapter X or under bond is not equivalent to clearance of goods wholly exempt from duty or goods chargeable to nil rate of duty. On that basis, the rule relied upon by the Revenue was held inapplicable to such clearances, and the denial of credit could not be sustained.

Conclusion: Rule 57C of the Central Excise Rules did not apply to the respondents' clearances under Chapter X, and the Modvat credit was admissible.

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