Modvat credit under one product does not forfeit small-scale exemption for other goods absent credit-linked use of inputs.

Availing Modvat credit for one specified product under Rule 57A does not automatically bar full exemption under Notification No. 175/86 for other specified goods on which no credit was taken. The restriction in the small-scale exemption scheme applies only to the goods for which credit is actually availed, and cannot be extended to unrelated cleared goods of the same manufacturer. The lower authority was required to verify whether the inputs on which credit was taken were used in the manufacture of the other goods, so the matter was remanded for that factual examination.

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Issues: Whether availing Modvat credit in respect of one specified product under Rule 57A of the Central Excise Rules, 1944 disables the manufacturer from claiming full exemption under Notification No. 175/86-Central Excises for other specified goods on which no such credit was taken.

Analysis: The exemption under Notification No. 175/86 operates on the specified goods cleared by a manufacturer, and the restriction in sub-clause (a)(i) applies where Modvat credit is availed of in relation to the goods for which exemption is claimed. The scheme does not justify extending the reduced-duty consequence to other goods merely because credit was taken for one item. A manufacturer cannot be placed at a disadvantage in respect of goods for which no Modvat benefit was taken, and the lower authority was required to verify whether the inputs on which credit was taken were used in the manufacture of the other goods.

Conclusion: Availment of Modvat credit for one specified product does not, by itself, deprive the manufacturer of full exemption for other specified goods on which no credit was taken; the matter required verification and remand.

Ratio Decidendi: The restriction in a small-scale exemption notification linked to Modvat credit applies only to the specified goods for which the credit is actually availed, and cannot be extended to unrelated specified goods cleared by the same manufacturer without such credit.

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