We are sharing with you an important judgement of the Hon’ble High Court of Delhi, in the case of Commissioner of Central Excise Vs. Grand Card Industries & Ors [2014-TIOL-496-HC-DEL-CX] on following issue:


Whether the option is available to the assessee either to avail the exemption notification or to pay duty on the final products by taking Modvat credit on inputs in terms of Rule 57A of the erstwhile Central Excise Rules, 1944 (“the Excise Rules”)?

Facts & Background:

Grand Card Industries & Ors (“the Respondent” or “the assessee”) were small scale industrial unit (“SSI Unit”) and at the relevant point of time eligible for benefit of the exemption on clearances upto aggregate value of Rs. 30 Lakhs in terms of the Notification No. 1/93-CE dated February 28, 1993 (“the Notification”). The said Notification provides exemption to first clearances of specified goods upto the value of Rs. 30 lakhs and concessional duty thereafter in case of SSI units having clearances not exceeding Rs. 2 crores in preceding year.

The assessee, instead of claiming benefit under the Notification, sought to take benefit of the Modvat credit under Rule 57A of the Excise Rules and paid full duty on final products to avail Modvat Credit.

The Department denied the Modvat credit on the premise that the assessee being covered under the Notification had no option and the Modvat credit was not admissible under Rule 57C of the Excise Rules. The same was upheld by the Commissioner of Central Excise (Appeals). Thereafter, the aggrieved assessee preferred an appeal before the Customs Excise and Gold (Control) Appellate Tribunal (“the Tribunal”) wherein the case was decided in favour of the assessee holding that the assessee cannot be denied the benefit of Modvat credit of duty paid on inputs used in the manufacture of final products on which duty was paid, though the final product would be exempt from duty under an exemption notification, since it was for the assessee to claim the concession. Hence, the Revenue filed the reference petition before the Hon’ble High Court of Delhi.


It is held by the Hon’ble High Court of Delhi that the assessee would have the option either to avail the exemption under the exemption notification or to pay duty on the final product by taking Modvat credit on inputs in terms of Rule 57A of the Excise Rules.

It was further held that if the right to choose is not granted then it would be disadvantageous for a manufacturer to get itself registered as a SSI unit. This would thus be to the detriment of the manufacturer to register as a SSI unit. This consequence is clearly not intended by the legislature.

Therefore, the Hon’ble High Court of Delhi rejected the contention of the Department and decided the case in favour of the assessee/ Respondent.

Important to Note:

It is also to be kept in mind that sub-section (1A) was inserted w.e.f May 13, 2005 under Section 5A of the Central Excise Act 1944, which states that where an exemption in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, then the manufacturer of such excisable goods shall not pay the duty of excise on such goods.

Hence, manufacturer has no choice but to avail exemption notification in case of exemption granted absolutely with no condition.

(Author – Bimal Jain– FCA, FCS, LLB, B.Com (Hons)- Email: [email protected])

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  1. PP Bhattacharya says:

    Will appreciate if you can put up / mail me the full text of the judgment. My mail ID is: [email protected]

    Just goes to show that the lawmakers (Revenue) work in a bottomless pit with a belief that “taxes are not levied for the benefit of the taxed”. And we see the judiciary revisit the rules of the game.

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March 2021