Modvat credit need not be reversed on later exemption of the final product, where credit was validly taken.

Modvat credit validly taken was not required to be reversed merely because the final product later became exempt from duty and the assessee opted for exemption. The dispute was limited to credit relatable to inputs lying as such or contained in finished stock on the date of opting for exemption. The Tribunal followed the Larger Bench view and the Kerala High Court view that validly availed credit does not automatically lapse on subsequent exemption of the final product. The separate question of entitlement to credit under Rule 57H(7) was not decided in this order, and the appeal succeeded.

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Issues: Whether Modvat credit validly taken was required to be reversed when the final product later became exempt from duty and the assessee opted for exemption.

Analysis: The dispute was confined to reversal of credit attributable to inputs lying as such or contained in finished stock on the date of opting for exemption. The Tribunal relied on the Larger Bench view that credit validly taken does not become liable to reversal merely because the final product is subsequently exempted, and also followed the Kerala High Court view to the same effect. The separate question of entitlement to credit under Rule 57H(7) was not decided in this order.

Conclusion: Reversal of the Modvat credit was not required, and the appeal succeeded.

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