Modvat/Cenvat credit remains available where inputs are ordinarily used for both dutiable and exempted goods, despite exempt-only clearances.

Modvat/Cenvat credit on molasses was available where the input was ordinarily used in manufacturing both dutiable and exempted products, even though during the disputed periods only exempted products were cleared and the prescribed amount under Rule 57CC(1)/Rule 57AD was paid. The rules did not require each clearance of exempted goods to be matched by a simultaneous clearance of dutiable goods, and the absence of a one-to-one correlation between input and final product did not defeat credit entitlement. Because the assessee's distillery division produced both categories in the relevant years, the credit could be retained and the demand for reversal failed.

---

---

Issues: Whether Modvat/Cenvat credit on Molasses could be availed when the assessee manufactured both dutiable and exempted products in the ordinary course, but during the disputed periods cleared only exempted products and paid the amount prescribed under Rule 57CC(1)/Rule 57AD.

Analysis: The relevant rules required only that the input be ordinarily used in the manufacture of both dutiable and exempted products. They did not impose any condition that each clearance of exempted products must be accompanied by a simultaneous clearance of a dutiable product. The fact that, for some periods, only exempted products were manufactured did not take the case outside the scheme, particularly when the assessee's distillery division manufactured both categories of products in the relevant years. The reasoning was consistent with the settled principle that the Modvat/Cenvat scheme does not require one-to-one correlation between input and final product.

Conclusion: The assessee was entitled to retain the Modvat/Cenvat credit and the Revenue's demand for reversal failed.

---