Optional exemption notification preserves MODVAT credit where final products are cleared on duty-paid basis.

An exemption notification under Section 5A(1) is optional, and an assessee may choose not to avail it where final products are cleared on payment of duty. The MODVAT provisions under Rule 57A and Rule 57C must be read harmoniously so the scheme continues to prevent cascading duty. On that basis, credit on duty-paid inputs cannot be denied merely because the final product could have been exempted. The assessee was therefore entitled to forgo the exemption and claim MODVAT credit on the inputs, and the contrary demand was unsustainable.

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Issues: Whether an assessee may decline to avail an exemption notification and still claim MODVAT credit on duty-paid inputs used in the manufacture of final products cleared on payment of duty.

Analysis: The exemption notification and the MODVAT scheme were treated as conferring alternative statutory benefits. The governing view was that an exemption notification issued under Section 5A(1) is optional, and the corresponding MODVAT provisions under Rule 57A and Rule 57C must be read harmoniously so that the scheme does not defeat its object of avoiding cascading duty. On that basis, if the assessee chooses to pay duty on the final product, credit on duty-paid inputs cannot be denied merely because the final product could have been exempted.

Conclusion: The assessee was entitled to choose not to avail the exemption notification and to take MODVAT credit on the inputs; the contrary demand was unsustainable.

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