Option to forego exemption and pay duty to preserve Modvat credit on inputs used in manufacture

An assessee may choose not to avail an exemption notification on captively consumed goods and instead pay duty, where that election preserves admissibility of Modvat credit on inputs used in manufacture. The Tribunal treated the issue as settled by prior decisions and applied the principle that exemption cannot be forced on the assessee when duty payment is chosen to secure input credit. A trade notice was also noted as supporting credit availability in that situation. On that basis, the assessee's option to pay duty on ingot moulds and claim Modvat credit on inputs was upheld, and the contrary order was set aside.

---

---

Issues: Whether the assessee could choose not to avail the exemption under Notification No. 46/94-C.E. for captively consumed ingot moulds, pay duty on the goods, and avail Modvat credit on inputs used in their manufacture.

Analysis: The issue was treated as no longer res integra and was covered by earlier Tribunal decisions holding that the assessee has the option either to avail or not to avail an exemption notification. Where the assessee pays duty on goods otherwise fully exempt, Modvat credit remains admissible on the inputs used in their manufacture. The Tribunal also noted the Collectorate Trade Notice clarifying the admissibility of credit in such a situation.

Conclusion: The assessee was entitled to opt to pay duty on the captively consumed ingot moulds and to claim Modvat credit on the inputs; the impugned order was set aside and the appeal was allowed.

Ratio Decidendi: An assessee cannot be compelled to avail an exemption notification and may elect to pay duty on fully exempt goods in order to take admissible Modvat credit on the inputs used in their manufacture.

---