Modvat credit remains an accrued right and does not lapse merely because an assessee exits the scheme.

Modvat credit validly earned under the scheme was treated as an accrued and indefeasible right available for adjustment against future duty liability. Rule 57H(5) was held applicable only where a manufacturer opted for full exemption from duty on manufactured goods; it did not apply merely because the assessee withdrew from Modvat while continuing clearances on payment of full duty. The credit balance therefore did not lapse on opting out of the scheme, and accumulated credit could still be utilised for discharge of duty. A demand founded on alleged wrongful utilisation of that credit was not sustainable.

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Issues: Whether credit balance lying in the assessee's statutory Modvat records on the date of opting out of the Modvat scheme automatically lapsed and could not thereafter be utilised for payment of duty on clearances made on full duty.

Analysis: The credit already earned under the Modvat scheme was treated as an accrued right available for adjustment against future duty liability. Rule 57H(5) applied only where a manufacturer opted for exemption from the whole of the duty on manufactured goods and, in that situation, the balance credit could lapse after the prescribed adjustment. The assessee had not opted for such full exemption after withdrawing from Modvat and had continued to clear goods on payment of full duty. The authorities' reliance on observations made in a stay matter was distinguished, while the Supreme Court's view that Modvat credit is as good as tax paid and is indefeasible, absent illegality or irregularity in its taking, was applied.

Conclusion: The credit balance did not lapse on opting out of Modvat and the assessee was entitled to utilise the accumulated credit for discharge of duty. The demand based on alleged wrongful utilisation could not be sustained.

Ratio Decidendi: Modvat credit validly earned creates an accrued and indefeasible right to set off duty liability, and it cannot be treated as lapsed merely because the assessee withdraws from the Modvat scheme, unless the governing rule expressly applies to a case of full exemption or other statutorily specified lapse.

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