Modvat credit for inter-unit inputs under Notification No. 175/86 cannot be denied absent a specific exclusion.

Rule 57B permitted notional higher Modvat credit on inputs received from another unit when the governing exemption notification allowed credit at the rate otherwise applicable. The two units were under common ownership and both operated under Notification No. 175/86; the final product of one unit was used as an input in the other, and the trade notice recognised credit for such inter-unit movement. In the absence of any specific exclusion in the rule or notification, the higher credit could not be denied by implication. The appellants were therefore entitled to the credit claim, and the denial was unsustainable.

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Issues: Whether the appellants were entitled to notional higher Modvat credit under Rule 57B on inputs received from another unit paying duty at the concessional rate under Notification No. 175/86.

Analysis: The two units were under common ownership and both operated under Notification No. 175/86. The final product of one unit was used as an input in the other, and the departmental trade notice recognised availability of Modvat credit in such inter-unit movement. Rule 57B and Clause 5 of Notification No. 175/86 permitted credit at the rate otherwise applicable, including higher notional credit where the notification so provided. No rule or notification was shown to exclude such benefit merely because the goods moved between the two units. Applying the clear language of the relevant provisions, the credit claim could not be denied.

Conclusion: The appellants were entitled to notional higher Modvat credit under Rule 57B, and the denial of such credit was unsustainable.

Final Conclusion: The appeal succeeded and the appellants obtained consequential relief according to law.

Ratio Decidendi: Where the governing exemption notification expressly permits higher credit under Rule 57B, the benefit cannot be withheld by implication in the absence of a specific exclusion.

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