Modvat credit on bonded clearances preserved where duty-free removal was not treated as exempt or nil-rated goods.

Modvat credit on inputs remained admissible where goods were cleared under bond without payment of duty under the applicable notification, because such clearances were not treated as wholly exempt or nil-rated removals. On that basis, Rule 57C of the Central Excise Rules, 1944 was not attracted to deny credit. The Court accepted the Tribunal's view that bonded clearances under Rule 13 stood on a different footing from exempt or nil-rated goods and upheld reliance on decisions drawing that distinction. The assessee was therefore entitled to Modvat credit, and the issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether Modvat credit on inputs used in manufacture of goods cleared under bond without payment of duty under the applicable notification was admissible, and whether such clearances attracted Rule 57C of the Central Excise Rules, 1944 so as to deny credit.

Analysis: The Court accepted the Tribunal's view that a clearance under bond without payment of duty pursuant to the notification issued under Rule 13 of the Central Excise Rules, 1944 is not the same as a clearance of goods that are wholly exempt from duty or chargeable to nil rate of duty. On that basis, the condition for invoking Rule 57C was not satisfied. The Court further found no error in the Tribunal's reliance on the line of decisions treating such bonded clearances as distinct from exempt or nil-rated goods, and held that the assessee remained entitled to Modvat credit on the inputs.

Conclusion: The question was answered against the Revenue and in favour of the assessee; no referable question of law arose.

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