Modvat credit and small-scale exemption can coexist where claimed for different goods under separate product categories.

Modvat credit under Rule 57A could be claimed alongside clearance of eligible detergent cake at nil duty under Notification No. 1/93-C.E. because the exemption and the credit related to different categories of goods. Detergent cake bearing the assessee's own brand name qualified for small-scale exemption, while detergent cake bearing another person's brand name fell outside the notification under paragraph 4. On that basis, simultaneous availment of exemption for one product category and Modvat credit for the other was not barred, and the demand was unsustainable.

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Issues: Whether Modvat credit under Rule 57A of the Central Excise Rules could be availed simultaneously with clearance of goods at nil rate of duty under Notification No. 1/93-C.E., where one category of detergent cake bore the assessee's own brand name and another category bore the brand name of another person.

Analysis: The assessee manufactured two different categories of detergent cake. The goods bearing its own brand name were eligible for exemption under Notification No. 1/93-C.E., while the goods bearing the brand name of another person fell outside the notification by virtue of para 4. Since the exemption and the Modvat credit related to different categories of goods, the simultaneous availment was not hit by the prohibition relied upon by the department. The principle followed was that small-scale exemption and Modvat credit may coexist where they are claimed in respect of different goods.

Conclusion: The assessee was entitled to avail Modvat credit while clearing the eligible goods at nil rate of duty, and the demand was unsustainable.

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