Modvat credit on molasses survives only when Scheme restrictions for exempt final products are satisfied

Modvat credit on molasses could be used for duty on sugar only if the credit was lawfully allowable under the scheme and consistent with the restrictions in Rules 57C and 57CC. Rule 57F(12) was treated as an enabling provision, not one that overrides the bar relating to exempt final products. On the facts noted, the assessee produced jurisdictional certificates and affidavits showing compliance with the prescribed Rule 57CC route, so the demand for reversal of credit was unsustainable and consequential relief followed.

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Issues: Whether credit of duty paid on molasses could be utilised under Rule 57F(12) of the Central Excise Rules, 1944 for payment of duty on sugar when the relevant inputs were also used in the manufacture of exempt ethyl alcohol, and whether the credit survived the requirements of Rules 57C and 57CC.

Analysis: Rule 57F(12) permits utilisation of specified duty credit on inputs towards duty on final products, but that entitlement cannot be read in isolation from the Modvat scheme. Credit is not available where the final product is exempt, and the credit mechanism must conform to the restrictions and options contained in Rules 57C and 57CC. The appellants subsequently produced jurisdictional certificates and supporting affidavits showing that the route prescribed by Rule 57CC had been followed, satisfying the statutory conditions governing availability and utilisation of credit.

Conclusion: The demand for reversal of credit was unsustainable and the appellants succeeded on the issue.

Final Conclusion: The departmental order could not be sustained, and the assessees were entitled to consequential relief.

Ratio Decidendi: Credit under the Modvat scheme may be utilised only when it is lawfully allowable under the governing rules, and a provision enabling utilisation cannot override the restrictions applicable to exempt final products.

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