Larger Bench precedent prevails over smaller Bench rulings, and settled Modvat input eligibility need not be referred again.

A larger Bench decision prevails over an earlier smaller Bench decision even if the larger Bench majority is not numerically greater than the smaller Bench strength. The note also records that refractory materials used by the assessee were already treated by a High Court as qualifying inputs for Modvat credit under Rule 57A, so no further reference on the exclusion clause was considered necessary. On that basis, the reference application failed and the matter was disposed of without further reference on either issue.

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Issues: (i) Whether a larger Bench decision prevails over an earlier smaller Bench decision even if the majority view in the larger Bench does not exceed the strength of the smaller Bench. (ii) Whether refractory materials fall within the exclusion clause in the proviso to Rule 57A so as to disentitle the assessee to Modvat credit.

Issue (i): The governing principle is that a decision of a larger Bench has precedence over a decision of a smaller Bench. The numerical strength of the majority in the larger Bench does not affect that rule.

Conclusion: The larger Bench decision prevails over the earlier smaller Bench decision.

Issue (ii): The question was not referred further because the material issue had already been decided by a High Court in favour of the view that refractory materials used by the assessee qualify as inputs eligible for Modvat credit under Rule 57A. In those circumstances, no useful purpose would be served by making another reference.

Conclusion: The exclusion clause was not treated as requiring a further reference, and the assessee's entitlement to Modvat credit was left undisturbed.

Final Conclusion: The reference application failed and the matter was disposed of without further reference on either question.

Ratio Decidendi: A larger Bench decision prevails over an earlier smaller Bench decision, and where the relevant issue has already been settled by a High Court, further reference need not be made.

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