V.P. Gulati, Member (T)

1. This appeal has been filed by the Revenue against the order of the Collector of Central Excise (Appeals), Madras, dated 24-10-1989.

2. The short point that falls for consideration in the appeal is whether the credit on the inputs under Rule 57A going into that portion of the specified finished product, which is cleared under exemption notification, has to be reversed. The respondents are manufacturers of tyres and, after filing a declaration under Rule 57G, they took MOD VAT credit in respect of the inputs specified under Rule 57A. After the finished product had been manufactured, the respondents cleared part of the goods free of duty under a notification.

3. The learned SDR for the Department pleaded that the MODVAT Scheme was introduced with the object of avoiding cascading effect of duty and under Rule 57C it has been specifically provided that credit of duty is not to be allowed if final products are exempt. The said Rule for convenience of reference is reproduced below:

RULE 57C. Credit of duty not to be allowed if final, products are exempt. - No credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.

He pleaded in the present case admittedly the respondents cleared part of the goods under an exemption notification without payment of duty and, therefore, in terms of Rule 57C no credit of duty in respect of inputs used in the manufacture of this exempted portion of the finished goods could be allowed. In this connection he cited the dissenting judgment in the case of Vikrant Tyres v. C.C.E., Bangalore [MANU/CE/0262/1988 : 1988 (38) ELT 301 (Tri.)] . He pleaded although in the majority judgment in that case it has been held that proforma credit once allowed cannot be recovered subsequently even if the finished products are exempted later on as no inter-linking account is provided for under Rule 56A, in the dissenting judgment it has been held that in terms of Rule 56A the credit taken in respect of the inputs used in the manufacture of the finished product, which are cleared under an exemption notification, will not be available.

4. The learned Advocate for the respondents, however, pleaded that the position in regard to the availment of credit where portion of the finished product is cleared under an exemption notification without payment of duty, is well-settled by now by a number of decisions of the Special Bench and the Regional Benches and he cited the following case laws in this regard:

(1) MANU/CC/0035/1987 : 1988 (33) E.L.T. 172 (Tribunal).

(2) MANU/CE/0262/1988 : 1988 (38) E.L.T. 301 (Tri.)

(3) MANU/CC/0045/1988 : 1989 (41) E.L.T. 181.

He pleaded that as held by the various Benches of the Tribunal no one-to-one correlation is provided for under Rule 57A and in that view of the matter once it is shown that the inputs are eligible for MODVAT credit the credit taken can be utilised for payment of duty on the finished product, which is notified under Rule 57A, notwithstanding the fact that part of the finished product has been cleared under an exemption notification. He pleaded that at the time when the inputs are received the assessees may not know that a part of the final product manufactured would be cleared under an exemption notification. In the present case, he pleaded, the exemption was in respect of goods which were to be used as original equipment and only at a later date, after the inputs had been received, the assessees could know whether the finished product is going to be cleared under the exemption notification depending upon when the orders from the original equipment manufacturers were received.

5. We observe that on the face of it the argument of the Revenue appears attractive that benefit of the MODVAT credit should only be limited to the extent of that portion of inputs as have been used for the finished pr