SSI exemption and Modvat reversal: post-clearance credit reversal could not validate duty-free clearance

An assessee claiming small-scale exemption under Notification No. 1/93-C.E. could not regularise the exemption by reversing Modvat credit only after clearance of the final product. The earlier Supreme Court ruling on SSI exemption was confined to cases where input credit had been reversed before removal of the exempted goods, so it did not cover post-clearance reversal. Later decisions cited by the assessee merely followed that earlier ratio and did not assist on these different facts.

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Issues: Whether an assessee engaged in small-scale manufacture can regularise availment of exemption under Notification No. 1/93-C.E. by reversing Modvat credit only after clearance of the final product.

Analysis: The exemption was claimed while the final product was cleared without payment of duty, but the reversal of Modvat credit on inputs was made only thereafter. The earlier Supreme Court ruling on SSI exemption applied to a situation where credit had been reversed before clearance of the exempted final product. That ratio did not extend to reversal after clearance. The Tribunal also held that the cited later decisions merely followed the earlier Supreme Court ruling and did not assist the assessee on the different facts.

Conclusion: The assessee could not validate the exemption by post-clearance reversal of Modvat credit. The issue was decided against the assessee.

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