Modvat credit on inputs for exempted tractors remained barred despite common inputs and mixed manufacture.

Rule 57C barred Modvat credit on specified duty paid inputs used in manufacturing exempted tractors, and Rule 57F(3) could not be applied to override that express prohibition. Common use of inputs and classification of different tractor varieties under the same tariff heading did not make them the same final product; each variety retained a distinct identity. The presence of both exempted and dutiable tractor varieties therefore did not remove the statutory bar on credit for inputs used in exempted goods. Claims for refund of credit reversed on this basis were rejected.

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Issues: Whether Modvat credit taken on common inputs used in the manufacture of exempted tractors could be utilised or retained, and whether refund of the reversed credit was admissible.

Analysis: Rule 57C barred credit of specified duty on inputs used in the manufacture of a final product that was exempted from the whole of duty. Rule 57F(3) could not be read so as to permit utilisation of credit in a manner that would override the express prohibition in Rule 57C. Mere commonality of inputs and classification of different tractor varieties under the same tariff heading did not make them one and the same final product. Each tractor variety retained its distinct identity, and simultaneous manufacture of exempted and dutiable varieties did not alter the statutory bar against credit for inputs used in exempted goods. The plea based on alleged revenue neutrality or public interest was rejected.

Conclusion: Credit on inputs used in exempted tractors was not available, and the refund claims based on reversal of such credit were rightly rejected.

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