Per Shri V.P. Gulati :

The issue in the appeal relates to demand of duty in respect of Tubes which were cleared in terms of Notification No. 202/88. The benefit of the Notification is contingent upon the MODVAT credit or the Proforma Credit not having been taken in respect of inputs used for the manufacture of the Tubes. The appellants manufactured the tubes out of the inputs in respect of which they had taken the MODVAT credit under rule 57A of the Central Excise Rules. When they cleared the goods under exemption notification No. 202/88, they reversed the MODVAT credit taken in respect of the inputs which were attributable to those finished products i.e. Tubes on monthly basis.

2. The Ld. Lower appellate authority in this regard has held in para-4 of his order as under :-

4. I have given due consideration to the impugned order and the contentions raised in appeal. The decision on this appeal rests on the interpretation of Notification 202/88. This is a conditional exemption notification granting exemption to final products if the input credit has not been availed either under Rule 56-A or 57-A. In the Board's clarification dated 7.1.87 relied on both by the lower authority as well as appellants it is made clear that credit of duty paid on inputs used in exempted products is debited on the credit account before removal of such exempted final products. The logic/reason behind this clarification is apparent on the face of it. The availment of exemption is subject to fulfilling the condition precedent that credit is not availed and this should happen before removal of exempted final products. In any event as per notification the exemption is available to final products for clearance without payment of duty only if the credit is not availed under Rule 56-A or 57-A of Central Excise Rule 1944. This stipulation cannot be whittled away or side stepped by availing the exemption first and expunging the credit later. The condition stipulated should be satisfied for availing the exemption. When at the time of clearance of final products, the credit availed has not been expunged, the exemption ceases to be available to the products cleared. As such I see no reason to differ with the reasoning of lower authority in the impugned order. The appellants seek to justify their availing the exemption on the premises that credit taken has been expunged. As indicated supra expunging the credit availed prior to availment of exemption on final product is a condition precedent. Their expunging the credit later to removal of final products cannot cure the defect and it would be a case of wrong availment of the said exemption.

3. The Ld. advocate for the appellants has pleaded that the appellants manufactured the tubes out of HR coils and in respect of which on receipt they took MODVAT credit. He has pleaded that out of the tubes manufactured only 3% of the tubes were cleared under the exemption notification No. 202/88 and the remaining tubes were cleared on payment of duty. He has pleaded that at the time when they received the inputs they in no way knew as to which of the tubes manufactured would be cleared under the exemption notification No. 202/88 and that the tubes that were cleared on payment of duty and those under the exemption notification were identical in nature. He has pleaded that at the time of receipt of inputs, they took the MODVAT credit for the entire quantity of the inputs namely HR coils. Depending upon the need for the tubes, the same were cleared under exemption Notification No. 202/88 and at the end of each month based on the quantum of the tubes that were cleared the appellants adopted the reversal of the MODVAT credit attributable to the inputs contained in the tubes cleared under the exemption notification No. 202/88.

4. He has pleaded that at any time, there was sufficient balance in the RG-23A account remaining unutilised which would be more than the MODVAT credit to be reversed for reason of clearance of the tubes under the