Modvat credit on inputs used after Chapter X clearances remained valid; no reversal was required for export under bond.

Clearances under Chapter X procedure were not treated as exempted or nil-rated clearances, so inputs used in manufacturing goods so cleared remained eligible for Modvat credit. On that reasoning, no reversal of credit was required where the final goods were exported under bond without payment of duty, and the Revenue's reliance on Kirloskar Oil Engines Ltd. was held inapposite because it did not address this factual situation. The demand for reversal of Modvat credit was therefore rejected as unsustainable.

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Issues: Whether proportionate Modvat credit was reversible or demandable under Rule 57C of the Central Excise Rules, 1944 in respect of inputs used in goods cleared under Chapter X procedure and thereafter used in manufacture of final goods exported under bond without payment of duty under Rule 13 of the Central Excise Rules, 1944.

Analysis: The Tribunal applied the ratio of its earlier order on the same issue. It held that clearances under Chapter X procedure are not to be treated as clearances of exempted goods or nil-rated goods. On that basis, the inputs used in the manufacture of final products so cleared were not disqualified for Modvat credit, and no question of reversal of such credit arose. The reliance placed by the Revenue on the Larger Bench decision in Kirloskar Oil Engines Ltd. was found misplaced because that decision did not deal with the present factual situation involving subsequent export under bond under Rule 13.

Conclusion: The demand for reversal of Modvat credit was not sustainable, and the Revenue appeals were rejected.

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