Modvat Scheme withdrawal before year-end is permissible, with post-withdrawal clearances counted for aggregate turnover.

A manufacturer who had opted into the Modvat scheme could validly withdraw before the end of the financial year because Rules 57A to 57J of the Central Excise Rules, 1944 contained no prohibition on mid-year exit. An earlier Tribunal view and the departmental trade notice both recognised that such withdrawal was permissible, though the clearances made after exit still had to be counted for aggregate turnover under Notification No. 175/86. On that basis, a duty demand founded on Rule 9(2) could not be sustained, and the associated penalty was also not sustainable.

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Issues: Whether a manufacturer who has opted to operate under the Modvat scheme can validly opt out of the scheme before the end of the financial year, and whether duty demand and penalty can be sustained for clearances made after such withdrawal.

Analysis: The relevant Modvat provisions in Rules 57A to 57J of the Central Excise Rules, 1944 contain no bar preventing a manufacturer from withdrawing from the scheme during the financial year after having once opted in. The position had already been recognised in an earlier Tribunal order, and the departmental clarificatory trade notice also accepted that a manufacturer may opt out in the same financial year, while requiring the value of such clearances to be included for computing the aggregate turnover under Notification No. 175/86. On that footing, the demand founded on Rule 9(2) could not stand.

Conclusion: The withdrawal from the Modvat scheme was permissible, and the duty demand and penalty were not sustainable.

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