Modvat credit on export-linked intermediate goods preserved where bonded clearance was not treated as exempt or nil-rated.

Modvat credit was treated as available where inputs were used in intermediate goods sent to another factory for further manufacture of export goods. Rule 57C was held inapplicable because clearance under bond for export is not equivalent to a wholly exempt or nil-rate final product, and Rule 57F(3) was read harmoniously to cover both inputs in exported final products and inputs in intermediate products used for export manufacture. On that basis, denial of credit was unsustainable, and the amount already debited from the RG 23A account had to be restored by recredit, with waiver of predeposit.

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Issues: Whether Modvat credit was available where inputs were used in the manufacture of intermediate goods cleared to another factory for further manufacture of export goods, and whether the amount already debited from the RG 23A account was liable to be recredited with waiver of predeposit.

Analysis: Rule 57C was held not to be attracted merely because the intermediate clearance was without payment of duty, since a clearance under bond for export is not the same as a wholly exempt or nil-rate final product. Rule 57F(3) was read as covering inputs used in final products cleared for export as well as inputs used in intermediate products sent out for completion of manufacture and export therefrom. The provisions were construed harmoniously and in the light of the earlier administrative instruction treating such bonded export clearances as neither exempt nor nil-rated. On that basis, the denial of credit was not sustainable. Since the amount had already been recovered by debit to the RG 23A account, meaningful interim relief required restoration of the credit.

Conclusion: The applicants were entitled to waiver of predeposit, and the department was directed to recredit the recovered Modvat amount to the RG 23A account.

Ratio Decidendi: Inputs used in goods cleared under bond for export, including intermediate products sent for further manufacture and export, are not hit by the bar against credit for exempted or nil-rated final products, and the relevant Modvat provisions must be construed harmoniously to preserve the credit benefit.

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