Modvat credit and small-scale industry exemption can coexist for different products under the SSI exemption scheme.

A small-scale industrial unit may simultaneously claim Modvat credit for some products and small-scale industry exemption for different products, according to the Tribunal's consistent interpretation that was previously upheld by the Supreme Court. The note also states that exemption under Notification No. 175/86-C.E. operates by reference to the prescribed first-clearance and aggregate-clearance limits, so entitlement continues until the relevant ceiling is reached. On that construction, the Revenue's contrary position was rejected and the assessee's entitlement to both credit and exemption was affirmed.

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Issues: (i) Whether a small-scale industrial unit could avail Modvat credit and small-scale industry exemption simultaneously in respect of different products; (ii) Whether exemption under Notification No. 175/86-C.E. was available where the first clearances and aggregate clearances crossed the prescribed limits.

Issue (i): Whether a small-scale industrial unit could avail Modvat credit and small-scale industry exemption simultaneously in respect of different products.

Analysis: The Tribunal followed its consistent view that the same unit may claim Modvat credit for some products while availing small-scale industry exemption for different products. That view had already been upheld by the Supreme Court, and no contrary basis was found to depart from it.

Conclusion: The issue was answered in favour of the assessee, who was held entitled to avail Modvat credit and small-scale industry exemption simultaneously in respect of different items.

Issue (ii): Whether exemption under Notification No. 175/86-C.E. was available where the first clearances and aggregate clearances crossed the prescribed limits.

Analysis: The Tribunal applied the construction earlier accepted for Notification No. 175/86-C.E., under which the exemption continues according to the scheme of first clearances and aggregate turnover limits. On that footing, the assessee remained entitled to exemption until the relevant ceiling was reached, and the contrary view urged by the Revenue was not accepted.

Conclusion: The issue was answered in favour of the assessee, and exemption under Notification No. 175/86-C.E. was held available on the stated terms.

Final Conclusion: The appeals succeeded on both substantive questions, and the assessee obtained the relief sought on the entitlement to exemption and credit under the applicable small-scale industry regime.

Ratio Decidendi: A small-scale industrial unit may, under the applicable exemption scheme, simultaneously avail Modvat credit for one line of products and small-scale industry exemption for different products, and the exemption under Notification No. 175/86-C.E. must be applied according to the prescribed clearance limits.

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