Modvat credit lapse on shift to compounded levy does not justify duty recovery absent express authority.

Where an assessee shifts from Modvat to compounded levy under Section 3A, the lapse of credit on the appointed date by operation of the applicable rule does not, by itself, authorise recovery or reversal of that credit. The analysis distinguished cases involving exemption from duty because here the final products continued to be cleared on payment of duty, and the assessee had not opted out of duty payment altogether. In the absence of a specific provision permitting demand on inputs lying in stock, inputs used in finished goods, or the lapsed credit balance, no duty demand was sustainable.

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Issues: Whether duty could be demanded on inputs lying in stock or used in finished goods when the assessee shifted from Modvat to compounded levy under Section 3A and the credit balance had lapsed on the appointed date.

Analysis: The relevant rules governing reversal of credit on opting for exemption and lapse of credit on opting for compounded levy were examined. The assessee did not opt for exemption from duty but only shifted from one duty-payment mechanism to another. The credit balance had lapsed by operation of the applicable rule and was not utilised thereafter. The cited High Court decision was distinguished because it dealt with final products cleared without payment of duty, whereas here the final products were cleared on payment of duty.

Conclusion: No duty demand was sustainable on the inputs or credit balance, and the assessee's case was accepted.

Ratio Decidendi: Where an assessee merely shifts from Modvat to compounded levy and the credit lapses by statutory operation, no reversal or recovery can be made absent a specific provision authorising such demand.

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