V.P. Gulati, Member (T)

1. This is an appeal against the order of the Collector of Central Excise (Appeals), Madras. Brief facts of the case are that the appellants are manufacturing a number of item falling under Heading Nos. 32.12, 32.13, 34.04, 32.09, 27.15, 27.08 and 38.07. They cleared goods falling under Tariff Heading 3208 without payment of duty in terms of the exemption Notification 175/86 upto a limit of Rs. 15 lakhs and thereafter started paying duty on the goods falling under this Tariff Item and claimed the benefit of MODVAT Credit in terms of Rule 57A. They also cleared goods subsequently under different Tariff headings and claimed the benefit of Notification 175/86 in respect of those items upto the aggregate limit of Rs. 15 lakhs as envisaged in the said notification. The learned original authority, while upholding the claim of the appellants that they could claim the benefit of notification upto the aggregate value of Rs. 30 lakhs for the items which are covered by the said notification, held that inasmuch as the appellants have started availing of the MODVAT Credit in terms of sub-clause (a)(i) of Notification 175/86 they were required to pay a duty of 10%. The relevant portion of the learned lower authority's order is reproduced below for convenience of reference:

"The Notification 175/86 lends exemption subject to other conditions to first annual clearance of Rs. 30 lakhs with a clause that any one heading should not avail exempted first clearance of more than Rs. 15 lakhs.

Hence each heading can avail exemption upto Rs. 15 lakhs clearance independently so long as the aggregate clearance does not exceed Rs. 30 lakhs. I agree with the party's contention in this regard.

Another question to be examined here is whether modvat can be availed in respect of one commodity and full exemption for other commodity under Notification No. 175/86 as per sub-clause (i). The scheme of exemption under Notification No. 175/86 Central Excise provide for an integrated method of computation of value of clearance. As per the notification, if a manufacturer avails of modvat relief in respect of specified goods covered under Notification, then the concessional rate of normal duty dues 10% adv. would apply. Keeping in view, the legal position as above and fact that there is no one to one correlation between the inputs and final products under the modvat scheme, it would not be possible, to allow a manufacturer simultaneously to avail of modvat for some of the products and full exemption for others under the small scale exemption scheme."

The appellants were in terms of this order called upon to pay a duty of Rs. 2,262.45. Before the learned Collector (Appeals) the appellants pleaded that inasmuch as they had not claimed the benefit of MODVAT credit in respect of the goods other than those falling under Heading 32.08 no duty could be demanded in respect of the goods cleared under the exemption Notification 175/86 and in respect of which the appellants had not taken any MODVAT Credit of the duty paid on the inputs going into the manufacture of the same. The learned Collector (Appeals) did not accept their plea and held as under:

"Once appellant starts availing of credit of duty paid on inputs, for any one item, he cannot at the same time avail of duty-free clearances for other goods, within value limits of Rs. 15 lakhs. As such the appellants contention in the grounds of appeal that there is nothing in Notification No. 175/86 to stop them from availing exemption upto 15 lakhs, in respect of other goods, falling under different tariff head is not correct. Once appellants started availing modvat, they are eligible for Modvat for all goods cleared by them, if notified under Notfn. No. 177/87."

2. The learned Consultant for the appellants pleaded that the appellants have availed of the MODVAT credit in respect of one product and in respect of 7 other items they had not taken any MODVAT Credit. In this connection he referred to the decision