Modvat credit on duty-paid exempt goods upheld where the manufacturer chose not to avail exemption and issued own invoices.

Modvat credit was held admissible where a manufacturer cleared otherwise exempt yarn on payment of duty under invoices issued in its own name, because election to forego an exemption notification left the duty-paid character intact for credit purposes. The contrary Board circular was treated as having no legal force against that position. The discussion on interest under Section 11AB was also outside the scope of the notice and adjudication order, so it did not affect the dispute. On that basis, credit could not be denied merely because the goods were exempt.

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Issues: Whether modvat credit could be denied merely because duty was paid on otherwise exempt yarn cleared under invoices issued in the manufacturer's own name, and whether the Board's circular could override the legal position.

Analysis: The duty payment on exempted goods was held to be a matter of election available to the assessee where an exemption notification existed. Once the manufacturer chose not to avail the exemption and paid duty, the resultant credit was available to the recipient manufacturer on the strength of the invoices issued by the manufacturer itself. The earlier Tribunal view supporting this position was followed, and the contrary circular was found to have no validity. The discussion relating to interest under Section 11AB was held to be outside the scope of the notice and the adjudication order and therefore did not affect the dispute.

Conclusion: Modvat credit could not be disallowed on the ground that the goods were exempt, and the assessee succeeded.

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