Modvat option without credit does not bar small scale exemption when no credit was actually availed.

A manufacturer who merely opts for the Modvat scheme, without actually availing any credit, is not denied small scale exemption under Notification No. 175/86-C.E. The operative distinction is between an election to use Modvat and actual utilisation of credit; only the latter has duty consequences affecting exemption eligibility. Where no credit was taken and the assessee was otherwise eligible, denial of the exemption is not justified. The exemption therefore remains available despite the mere option to adopt Modvat.

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Issues: Whether a manufacturer who had opted for the Modvat scheme but had not actually availed any Modvat credit could be denied the benefit of small scale exemption under Notification No. 175/86-C.E.

Analysis: The admitted position was that the assessee had only opted for Modvat and had not taken any credit. On that basis, there was no justification to deny the normal small scale exemption when the assessee was otherwise eligible for it. The distinction drawn was between merely opting for Modvat and actually working the scheme by availing credit; only the latter had the consequence of requiring duty payment from the beginning, though at reduced rates.

Conclusion: The assessee was not disentitled to small scale exemption merely because Modvat had been opted for without any credit being actually availed, and the denial of exemption was not justified.

Final Conclusion: The appeal failed, and the exemption available to the assessee was upheld.

Ratio Decidendi: Mere option for Modvat credit, without actual availment of credit, does not by itself bar entitlement to small scale exemption otherwise admissible under the notification.

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