[Order per : Lajja Ram, Member (T)]. - This appeal has come before us in Larger Bench on a reference made by a Bench of Two Members in Order Nos. C-II/1118-1119/WZB/2000, dated 10-4-2000. The question referred for our consideration is whether with regard to the same specified goods, the benefit of Modvat credit and the benefit of full exemption under small scale exemption notification, could be availed of by an assessee simultaneously. With regard to different specified goods, there was already a decision dated 20-4-1992 of the Tribunal in the case of Faridabad Tools Pvt. Ltd. v. CCE - (Tribunal) holding that with regard to different specified goods, the benefit of Modvat credit and the benefit of full exemption under small scale exemption Notification could be availed of simultaneously by an assessee but on different goods. This decision had been confirmed by the Hon'ble Supreme Court on 2-1-1996 through dismissal of the Civil Appeal filed by the Revenue.

The referring Bench had noted the Five Member Larger Bench's decision dated 19-11-1994 of the Tribunal in the case of Kamani Foods v. CCE, Patna - (Tribunal), wherein it was held that in terms of Notification No. 175/86-C.E. dated 1-3-1986, full exemption would not be available under that Notification to a manufacturer for the specified goods manufactured by him if he chooses to avail of the benefit of Modvat credit for other specified goods. The Larger Bench had followed the Tribunal's earlier decision dated 4-5-1989 in the case of Kharia Cement Works v. CCE - (Tribunal). The Larger Bench had differed with the view taken by the Tribunal in the case of Faridabad Tools Pvt. Ltd. v. CCE - (Tribunal). As already observed above, this decision in the case of Faridabad Tools Pvt. Ltd. had since been confirmed by the Hon'ble Supreme Court through dismissal of Civil Appeal filed by the Revenue.

2. The appellants have filed written submissions. They have mentioned in these written submissions that the Tribunal's Larger Bench's decision in the case of Kamani Foods v. CCE, Patna - (Tribunal) was rendered on 19-1-1994 before the dismissal of the Civil Appeal filed by the Revenue against the Tribunal's Order in the case of Faridabad Tools Pvt. Ltd. v. CCE - (Tribunal) [refer Court Room Highlights appearing at page A149 in 1996 (82) E.L.T.] It was also submitted that the appellants' case was similar to the one decided by the Tribunal in the case of Jaina Detergent Pvt. Ltd. v. Commissioner of Central Excise, Allahabad - (Tribunal). It was however fairly agreed that the Supreme Court had admitted the Civil Appeal filed by the Revenue against this Tribunal's Order in the case of Jaina Detergent Pvt. Ltd. v. Commissioner of Central Excise, Allahabad - (Tribunal) [refer page A240 of 2000 (118) E.L.T.].

Shri Prabhat Kumar, SDR submitted that in the present case the goods manufactured by the appellants were classifiable under Chapter 30 of the Central Excise Tariff, and the same specified goods even when manufactured with their own brand name as well as with the brand name of loan licensee, could not be considered as different goods. He pleaded that the issue for consideration in the present proceedings was different than the one before the Tribunal in the case of Faridabad Tools Pvt. Ltd. v. CCE - (Tribunal).

3. We have carefully considered the matter.

4.  Insofar as the availing of Modvat credits and the full exemption under small scale exemption Notification, on different specified goods is concerned, the matter is already covered by the Tribunal's decision in the case of Faridabad Tools Pvt. Ltd. v. CCE - (Tribunal), which has since merged with the order of the Hon'ble Supreme Court. The Hon'ble Supreme Court has confirmed the view taken by the Tribunal by dismissing the Revenue's Civil Appeal, as mentioned in the Court Room Highlights at page A149 of 1996 (82) E.L.T. Thus, the view taken by the Tribunal that the full exemption under small scale exemption notification on the one hand, and the Modvat credit on the other hand, could be availed of simultaneously by a manufacturer, but on different goods, has been confirmed by the Supreme Court by virtue of doctrine of merger. In para 10 of their judgment in the case of V.M. Salgaocar & Brothers Pvt. Ltd. etc. v. Commissioner, Income Tax etc. and Commissioner, Income Tax, Karnataka at Bangalore v. Shivanand v. Salgaocar - 2000 (38) RLT 619 (SC), the Hon'ble Supreme Court had held as under :-

10. Different considerations apply when a special leave petition under Article 136 of the Constitution is simply dismissed by saying dismissed and an appeal provided under Article 133 is dismissed also with the words 'the appeal is dismissed. In the former case it has been laid by this Court that when special leave petition is dismissed this Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the court means is that its does not consider it to be a fit case for exercise of its jurisdiction under Article 136 of the Constitution. That certainly could not be so when appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of Article 133. This doctrine of merger does not apply in the case of dismissal of special leave petition under Article 136. When appeal is dismissed order of the High Court is merged with that of the Supreme Court. We quote the following paragraph from the judgment of this Court in the case of Supreme Court Employees' Welfare Association v. Union of India and Another [JT 1989 (3) SC 188 = 1989 (4) SCC 187] :-

“22. It has been already noticed that the special leave petitions filed on behalf of the Union of India against the said judgments of the Delhi High Court were summarily dismissed by this Court. It is now a well settled principle of law that when a special leave petition is summarily dismissed under Article 136 of the Constitution, by such dismissal this Court does not lay down any law, as envisaged by Article 141 of the Constitution, as contended by the learned Attorney General. In Indian Oil Corporation Ltd. v. State of Bihar [JT 1986 132=1986 (4) SCC 146], it has been held by this Court that the dismissal of a special leave petition in limine by a non-speaking order does not justify any inference that, by necessary implication, the contentions raised in the special leave petition on the merits of the case have been rejected by the Supreme Court. It has been further held that the effect of a non-speaking order of dismissal of a special leave petition without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that the Supreme Court had decided only that it was not a fit case where special leave petition should be granted. In Union of India v. All India Services Pensioners' Association [JT 1988 (1) SC 96= 1988 (2) SCC 580] this Court has given reasons for dismissing the special leave petition. When such reasons are given, the decision becomes one which attracts Article 141 of the Constitution which provides that the law declared by the Supreme Court shall be binding on all the courts within the territory of India. It, therefore, follows that when no reason is given, but a special leave petition is dismissed simpliciter, it cannot be said that there has been a declaration of law by this Court under Article 141 of the Constitution.”

5. As regards the availment of Modvat credit as well as the availment of full duty exemption under the small scale exemption Notification No. 1/93-C.E., dated 28-2-1993 with regard to the same specified goods also, we consider that the matter could be disposed of in the light of the procedure settled by the Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur - (S.C.).

It was a case where the appellants were engaged in the manufacture of enamelled copper winding wires from duty paid copper wire bars. The enamelled copper winding wires were either cleared at nil rate of duty, or on payment of appropriate duty under Notification No. 69/86-C.E., dated 10-2-1985 as amended. The inputs which were utilised in the manufacture of enamelled copper winding wires were duty paid and the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger, which they were required to maintain under the Central Excise Rules, 1944. The appellants however reversed the credit entries of duty paid of inputs which were utilised for manufacture of the duty free enamelled copper winding wires. After making a reference to the departmental circular, the Hon’ble Supreme Court observed that they saw no reason why the assessee could not make a debit entry in the credit account before removal of the exempted final products. The Hon’ble Supreme Court held that after such reversal, the claim for exemption of duty on the disputed goods could not be denied on the plea on the inputs used in the manufacture of exempted goods. Paras 6 and 7 from that decision are extracted below :-

6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under :-

“3. The credit account under Modvat rules may be maintained chapterwise, Modvat credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufac­ture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products.”

This circular deals with a case where the manufacturer produces duti­able final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.

7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.

6. Drawing the similar analogy, we consider that subject to the reversal of the Modvat credit taken with regard to the inputs which were utilised for the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as the full duty exemption under the applicable small scale exemption Notification with regard to the same specified goods. The reference is answered accordingly.

7. As a result, the impugned Order-in-Appeal, dated 28-1-1999 passed by the Commissioner of Central Excise (Appeals) is set aside and the appeal of M/s. Franco Italian Co. Pvt. Ltd. is allowed subject to the condition that the Modvat credit taken of the duty paid on the inputs which were utilised for the manufacture of duty free goods, is reversed.