Modvat credit removal duty follows the factory-based rate on clearance, not the original credit rate.

Inputs cleared from a factory after Modvat credit had been taken were required to bear duty at the rate applicable to goods deemed to have been manufactured in that factory, not merely at the rate originally credited. The rule treated such inputs, when removed for home consumption or under bond for export, as if manufactured in the same factory, so the applicable duty followed the factory-based rate on removal. A later notification invoked by the assessee did not apply to a clearance made in November 1993, and the concessional rate for small scale units was unavailable because the respondents did not qualify for that benefit. The Revenue's position was accepted.

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Issues: Whether inputs cleared from the factory after availing Modvat credit were required to bear duty at the rate applicable as if the inputs had been manufactured in the factory, or only at the rate at which credit had originally been taken.

Analysis: The applicable rule provided that inputs on which Modvat credit had been allowed could be removed for home consumption or export under bond as if such inputs had been manufactured in the said factory. On that basis, the duty on removal had to be determined with reference to the rate applicable to the factory from which the inputs were removed. The subsequent notification relied upon by the assessee was held to be of later date and not applicable to a clearance made in November 1993. The reasoning accepted the Revenue's position that the respondents, not being a small scale unit, could not claim the concessional rate available to the suppliers.

Conclusion: The issue was decided in favour of the Revenue and against the assessee; the respondents were not entitled to clear the inputs by paying duty only equal to the credit originally taken.

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