SSI exemption and Modvat choice: non-availment of credit does not forfeit Notification No. 175/86 benefit.

A small scale industry unit eligible for Notification No. 175/86-C.E. did not lose the exemption merely because it did not actually avail Modvat credit under Rule 57A. Where the notification permitted a choice between taking Modvat credit and clearing goods without duty within the prescribed limit, non-availment of credit did not justify denial of the exemption or levy of duty at the tariff rate. The mere filing of a declaration to avail Modvat, without actual use of the credit, was insufficient to withdraw the notification benefit. The manufacturer therefore remained entitled to the SSI exemption, and recovery at the tariff rate was not sustainable.

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Issues: Whether a Small Scale Industry unit eligible for the benefit of Notification No. 175/86-C.E. could be denied the exemption or required to pay duty at the tariff rate merely because it did not avail Modvat credit under Rule 57A of the Central Excise Rules.

Analysis: The unit was not disputed to be eligible for the SSI exemption notification. The notification permitted an assessee to choose between availing Modvat credit and clearing goods without payment of duty within the prescribed limit. If the assessee did not opt to avail Modvat credit, it could still clear the goods without payment of duty under the relevant limb of the notification. The mere filing of a declaration to avail Modvat, without actual availment, did not justify denial of the notification benefit. Rule 57E also provided departmental power to vary Modvat credit, and the fact that customers may have obtained higher notional credit did not authorize recovery of duty at the tariff rate from the manufacturer.

Conclusion: The demand for duty at the tariff rate was not sustainable, and the assessee remained entitled to the benefit of the SSI exemption notification.

Final Conclusion: The Revenue's challenge failed because eligibility under the SSI notification was not lost merely due to non-availment of Modvat credit, and the order granting relief to the assessee was upheld.

Ratio Decidendi: Where an exemption notification gives the assessee an option to avail Modvat credit or clear goods without duty, failure to actually avail Modvat credit does not by itself forfeit the exemption or justify levy at the tariff rate.

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