Notional Modvat credit under a concession notification is confined to basic excise duty, excluding special excise duty from computation.

Clause (5) of Notification No. 175/86, read with Rule 57B, confines notional Modvat credit on inputs supplied by SSI units to the basic excise duty component. The clause operates within the concession scheme and is directed to the duty element covered by the notification, so special excise duty cannot be included in the notional computation. Credit is therefore to be worked out on basic excise duty first, with any special excise duty actually paid added separately for Modvat purposes.

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Issues: Whether, under Rule 57B read with Clause (5) of Notification No. 175/86 dated 01-03-1986, notional credit on inputs supplied by SSI units could be computed by taking into account special excise duty, or whether it was confined to basic excise duty only.

Analysis: Clause (5) of the notification governs credit in respect of specified goods received on or after 1-4-1988 and uses the phraseology of the duty applicable under the notification and the duty otherwise applicable but for the notification. The provision operates as an exception within the concession scheme and is tied to the structure of Rule 57B. On a proper reading, the clause controls the method of reckoning notional credit for the duty element that is the subject of the exemption/concession. The reasoning accepted that the clause is directed to basic excise duty and does not extend the notional computation to special excise duty. The Tribunal preferred the view that credit must first be worked out on the basic excise duty and only thereafter the special excise duty actually paid can be added for Modvat credit purposes.

Conclusion: Notional credit under Clause (5) is confined to basic excise duty and special excise duty cannot be included in the computation.

Final Conclusion: The lower authorities were right in restricting the credit computation in the manner stated, and the appeal failed.

Ratio Decidendi: Where a concession notification read with Rule 57B grants notional credit at a prescribed rate, the computation must be confined to the duty element to which the clause is directed and cannot be expanded to include a separate duty component not covered by the clause.

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