Factory-wise Modvat restriction under an exemption notification does not bar exemption for goods made in a different unit.

An exemption under Notification No. 5/99-C.E. could not be denied merely because the manufacturer availed Modvat credit on inputs in a different factory. The condition restricting credit was read factory-wise: it applied to goods covered by the exemption and other products manufactured in the same factory, not to credit taken in another unit of the same manufacturer. The Tribunal therefore treated the denial of exemption as unsustainable and held that the specified goods manufactured at the concerned factory remained eligible for the notification benefit, with the related demand and penalty set aside.

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Issues: Whether the benefit of Notification No. 5/99-C.E. dated 28-2-1999 could be denied to the specified goods manufactured in one factory on the ground that the manufacturer was availing Modvat credit in respect of inputs used in another factory.

Analysis: Condition No. 10 of the notification barred availment of credit on the goods covered by the exemption or on any other product manufactured in the same factory. The restriction operated factory-wise and did not extend to credit availed in a different factory under the same manufacturer. The Tribunal followed its earlier view that the notification prohibited credit only in relation to products manufactured in the same factory and not in respect of goods produced in another unit.

Conclusion: The denial of the notification benefit was unsustainable. The assessee was entitled to the exemption for the specified goods manufactured at the concerned factory, and the demand and penalty relating to that denial were set aside.

Final Conclusion: The appeal succeeded on the exemption issue, resulting in relief to the assessee in respect of the disputed demand and penalty.

Ratio Decidendi: Where an exemption notification restricts credit only for goods covered by the notification or other products manufactured in the same factory, the availment of Modvat credit in a different factory does not defeat the exemption for the specified goods in the exempted factory.

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