Mutual exclusivity of exemption and Modvat credit, and a demand survives despite a wrong provision if jurisdictional basis exists.

A manufacturer could not simultaneously avail Notification No. 175/86 for some goods and use Modvat credit for other goods, because the governing interpretation treated the two benefits as mutually exclusive for the same manufacturer; the demand was therefore upheld on that point. A demand based on provisions not properly invoked in the show cause notice was also sustained, as Rule 57-I did not apply to duty-free clearances and Rule 9(2) could not be used absent clandestine removal or any allegation of suppression; the wrong-provision objection was not enough to invalidate the demand.

---

---

Issues: (i) Whether a manufacturer availing the benefit of Notification No. 175/86 could simultaneously clear some products without duty and other products after utilising Modvat credit. (ii) Whether a demand and confirmation made under provisions not properly invoked in the show cause notice could be sustained.

Issue (i): Whether a manufacturer availing the benefit of Notification No. 175/86 could simultaneously clear some products without duty and other products after utilising Modvat credit.

Analysis: The Tribunal held that the larger bench view governing the notification had distinguished earlier decisions relied upon by the assessee and had concluded that the two alternatives under the notification could not be availed of at the same time by the same manufacturer for different goods. The contrary interpretation adopted below was therefore inconsistent with the governing interpretation of the notification.

Conclusion: The issue was decided in favour of Revenue and against the assessee.

Issue (ii): Whether a demand and confirmation made under provisions not properly invoked in the show cause notice could be sustained.

Analysis: The Tribunal held that the demand related to goods cleared without duty, for which Rule 57-I had no application. Rule 9(2) also could not apply because the case did not involve clandestine removal and the notice contained no allegation of suppression. The principle that invocation under the wrong provision may be curable was held inapplicable because the basic jurisdictional source for the demand was absent.

Conclusion: The issue was decided in favour of Revenue and against the assessee.

Final Conclusion: The appeal succeeded and the order of the lower authority was set aside, as the assessee could not simultaneously enjoy both benefits and the demand could not be invalidated on the pleaded technical objection.

Ratio Decidendi: Where the substantive power to demand duty is absent on the facts, the demand cannot be sustained merely by invoking an inapplicable provision, and the alternative benefits under the exemption notification cannot be simultaneously availed of when the governing interpretation prohibits such concurrent use.

---