Modvat credit on inputs for exempt final products is not admissible and must be reversed.

Modvat credit on inputs used for exempted vegetable products, and on inputs lying in stock for those exempted goods, is not admissible once the final products have become exempt from duty. The relevant inputs were linked to exempt vegetable products, and no evidence was produced to show that they were also used in making other dutiable final products. Applying the cited High Court principle, the credit had to be reversed and could not be utilised against duty on other excisable goods. The disallowance of the credit was therefore sustained.

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Issues: Whether Modvat credit taken on inputs used in the manufacture of exempted vegetable products, and on inputs lying in stock for such exempted goods, was admissible and could be utilised for payment of duty on other excisable goods.

Analysis: The appellants did not produce evidence to show that the disputed inputs were also used in the manufacture of other dutiable final products. The credit was taken in relation to inputs used for exempted vegetable products, and those products had become exempt from duty from 23-7-1996 under Notification No. 16/96-C.E. The applicable legal position, as relied upon from the cited High Court decision, is that Modvat credit in respect of inputs in stock and inputs used in the manufacture of final products that have become exempt is not admissible and must be reversed.

Conclusion: The credit was inadmissible and the impugned order disallowing it was upheld.

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