Modvat credit on common inputs bars selective small-scale exemption under Notification No. 175/86-C.E. for one product.

A manufacturer who availed Modvat credit on common inputs could not selectively claim exemption under Notification No. 175/86-C.E. for one finished product while using the same input facility for another product. The Tribunal held that the notification distinguished between manufacturers who took input credit and those who did not, so the exemption scheme had to be applied as a whole rather than split product-wise on the basis of separate clearance limits. On that construction, the assessee was not entitled to full exemption and the denial of exemption was upheld.

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Issues: Whether exemption under Notification No. 175/86-C.E. could be claimed for one product when Modvat credit under Rule 57A had been availed in respect of common inputs used in another product manufactured by the same unit.

Analysis: The exemption notification, read as a whole, differentiated between manufacturers who availed credit of duty on inputs and those who did not. The assessee had availed Modvat credit on the common input formaldehyde for both finished products, and the claim to full exemption for one product was sought on the footing that its clearances were within the monetary limit. The Tribunal preferred the earlier Special Bench view that the notification did not permit splitting the benefit by product where the manufacturer had availed the input credit facility in respect of the common inputs used in the manufacture of the specified goods.

Conclusion: The assessee was not entitled to exemption under Notification No. 175/86-C.E.; the denial of exemption was upheld.

Ratio Decidendi: Where a manufacturer avails Modvat credit on common inputs used in the manufacture of the specified goods, the exemption scheme under Notification No. 175/86-C.E. must be applied as a whole and cannot be selectively claimed for another product on the basis of separate clearance limits.

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