Modvat credit remains available where dutiable goods move under Chapter X for export under bond without attracting Rule 57C.

Modvat credit on inputs used to manufacture dutiable final products was not hit by Rule 57C merely because the goods moved under Chapter X without payment of duty for export-linked clearance under bond. The goods were not treated as exempted or nil-rate goods, and the in-bond clearance was only a procedural mode. As the final products remained dutiable, the inputs were not disqualified from credit. Reliance on Kirloskar Oil Engines Ltd. was misplaced because it did not address the same Chapter X and export-under-bond factual setting. Reversal or recovery of Modvat credit was therefore not warranted.

---

---

Issues: Whether Modvat credit taken on inputs used in the manufacture of dutiable final products cleared under Chapter X procedure without payment of duty was reversible or demandable under Rule 57C of the Central Excise Rules, 1944 when such goods were ultimately used in the manufacture of export goods cleared under bond.

Analysis: The goods cleared from the respondent's factory under Chapter X procedure were not treated as exempted goods or goods chargeable to nil rate of duty. The clearance without payment of duty for export-linked movement did not attract the mischief of Rule 57C. Since the final products remained dutiable and the in-bond clearance was only a procedural mode, the inputs used in their manufacture were not disqualified from Modvat credit. The reliance placed by the Revenue on the Larger Bench decision in Kirloskar Oil Engines Ltd. was held to be misplaced because that decision did not deal with the same factual situation involving clearances under Chapter X followed by export under bond.

Conclusion: Reversal or recovery of Modvat credit was not warranted, and the Revenue's challenge failed.

---