ORDER
Gowri Shankar, Member (T)
1. The question for consideration in this appeal is whether Modvat credit could be taken on inputs which were cleared by the appellant without payment of duty in terms of Notification 81/75 to another factory, where the goods were used in the manufacture of goods which were cleared on payment of duty.
2. The Additional Collector had denied the credit on the ground that the input was not used in the manufacture of goods which were cleared on payment of duty. Dealing with the appeal from this order, the Collector (Appeals) took the view that when inputs were received, credit was correctly taken, and that the goods were not cleared under a general exemption notification, and that therefore, it cannot be said that the assessee deliberately availed credit.
3. The department’s contention in the appeal is that the finished product in the manufacture of which inputs were used were cleared without payment of duty and hence provisions of Rule 57C are attracted.
4. Respondent contends that the goods were cleared in terms of procedure under Chapter X of the rules which provides for remission of duty which is different from exemption. He relies upon the decision of the Tribunal in CCE v. Bajaj Tempo Ltd. .
5. Identical issue was considered in Alkalyne v. CCE and the same arguments were advanced in that case. The Tribunal noted therein that the final goods were exempted from duty under a notification which has a condition with regard to procedures to be followed. It states that the larger bench decision in Kirloskar Oil Engines v. CCE 1997 (72) ECR 495 (T) has held that in a situation where exemption was available subject to the chapter X procedure’ being followed, credit could not be taken. It distinguished the decision in Bajaj Tempo Ltd. v. CCE on the ground that that related to notification 217/86 which has distinguishing features especially adopted in connection with Modvat scheme on that notification. The same consideration would apply here. Notification 81/75 again is an exemption notification under Rule 8. The only requirement is that chapter X procedure to be followed. It is therefore a notification granting exemption and not remission from duty.
6. The Collector (Appeals) has misdirected himself as to the nature of the exemption. The fact that a bond is given or that the exemption provided in notification is conditional upon a procedure being followed or for the goods to be used for a particular purpose does not render the exemption ineffective. An exemption under a conditional notification is no different from an unconditional exemption if the condition subject to which the exemption granted is fulfilled. If the condition is not fulfilled the exemption does not take effect and there would then be no question of applying Rule 57C. The fact that assessee took the credit in good faith without intent to evade duty is entirely irrelevant in deciding whether credit is available or not.
7. Applying the ratio of the decision in Kirloskar Oil Engines v. CCE and other decisions cited, it would have to be held that credit was not available on the duty paid on the inputs used in the manufacture of goods which were cleared without payment of duty.
8. I therefore allow the appeal, set aside the order of the Collector (Appeals) and restore the order of the Assistant Collector.
Dictated in Court.