Modvat credit for exports under bond remains available despite nil-rated domestic treatment of the final product.

Modvat credit on duty-paid inputs used in goods exported under bond cannot be denied merely because the finished product is treated as exempt or liable at nil rate in domestic tariff treatment. The article follows settled precedent that export under bond preserves entitlement to input credit, and a restrictive reading of the Modvat provisions would conflict with the export-incentive scheme. The practical effect is that denial of credit in such cases is not sustainable, and the assessee remains entitled to the credit.

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Issues: Whether Modvat credit on inputs used in the manufacture of goods exported under bond could be denied on the ground that the final product was treated as exempt or chargeable at nil rate of duty.

Analysis: The appeal turned on the settled position that when finished goods are exported under bond, the benefit of Modvat credit on duty-paid inputs cannot be disallowed merely because the final product is regarded as exempt or nil-rated in domestic tariff treatment. The order followed prior precedent holding that export under bond is entitled to input credit and that the restrictive reading of the Modvat provisions is inconsistent with the policy of encouraging exports.

Conclusion: The denial of Modvat credit was not sustainable and the assessee was entitled to the credit.

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