Modvat credit on inputs exported under bond may be retained where the rules do not bar its utilisation.

Rule 57F(1)(ii) permits removal of inputs for export under bond and treats that removal as if the inputs were manufactured in the factory. Rule 13 allows export without payment of duty, and Rule 57(4) does not restrict utilisation or retention of Modvat credit on such inputs. On that basis, the appellate order allowing retention of credit was found unobjectionable, and the assessee was entitled to retain the Modvat credit on inputs exported under bond.

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Issues: Whether Modvat credit on inputs cleared for export under bond could be retained by the assessee under Rule 57F(1)(ii) of the Central Excise Rules.

Analysis: Rule 57F(1)(ii) specifically deals with removal of inputs for export under bond and treats such removal as if the inputs were manufactured in the factory. Rule 13 of the Central Excise Rules permits export without payment of duty, and Rule 57(4) does not impose any restriction on utilisation or retention of credit in respect of inputs exported under bond. The authority therefore found no infirmity in the appellate order allowing the credit.

Conclusion: The assessee was entitled to retain the Modvat credit on the inputs exported under bond.

Ratio Decidendi: Where the rules expressly permit removal of inputs for export under bond and do not bar utilisation of credit, Modvat credit cannot be disallowed merely because the inputs were so exported.

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