Modvat credit on reversed inputs: duty components retain separate identity, so Special Excise Duty could not be recharacterised as basic duty.

Reversal of credit on clearance of inputs as such under Rule 57F(1)(ii) satisfies the reversal obligation, but it does not change the legal character of the duty components originally paid. Basic duty and Special Excise Duty remain distinct, so only the component admissible under the Modvat scheme can be credited. The Special Excise Duty component could not be recharacterised as basic duty merely because credit was reversed, and the cited authorities did not support such conversion. The denial of Modvat credit for that component was therefore upheld.

---

---

Issues: Whether, on clearance of inputs as such under Rule 57F(1)(ii), the duty reversed by the recipient factory could be treated as basic duty in its entirety so as to permit Modvat credit of the component representing Special Excise Duty.

Analysis: The reversal required on clearance of inputs as such only satisfies the obligation under Rule 57F(1)(ii); it does not alter the legal character of the constituent levies originally paid. The basic duty and the Special Excise Duty components retain their separate identity even after reversal. Credit could therefore be allowed only to the extent the duty component was admissible under the Modvat scheme, and the Special Excise Duty component, not being chargeable on the finished goods after the relevant exemption/notification position, could not be converted into basic duty by the assessees. The cited decisions did not assist because they did not support changing the nature of the duty component.

Conclusion: The Special Excise Duty component was not available as credit and the denial of that portion of Modvat credit was upheld.

Final Conclusion: The appeal failed and the order of the Commissioner (Appeals) sustaining denial of the disputed Modvat credit was affirmed.

Ratio Decidendi: Reversal of credit on clearance of inputs as such does not change the character of the duty components originally paid, and credit is admissible only for the component permitted by the Modvat rules.

---