Modvat credit reversal applies when nil-rated clearances include a product shown in the classification list without proportionate credit reversal.

Modvat credit attributable to inputs used in goods cleared at nil duty had to be reversed where the assessee's classification list treated spent sulphuric acid as a product and no rectification was sought. The registration certificate describing it as a by-product was insufficient to displace the departmental record, and the contrary plea was treated as an afterthought. As the assessee manufactured acid slurry and spent sulphuric acid as products and cleared the latter without proportionate reversal of credit, the conditions of Rule 57CC(1) were attracted. Reversal of 8% of the value of the nil-rated clearances was therefore required.

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Issues: Whether Modvat credit attributable to inputs used in the manufacture of Spent Sulphuric Acid, cleared at NIL rate of duty and shown in the classification list as a product, was liable to reversal under Rule 57CC(1).

Analysis: The registration certificate described Spent Acid as a by-product, but the classification list filed before the Department treated Spent Sulphuric Acid as a product. No rectification of that classification list was ever sought. On the record, the plea that it was merely a by-product was treated as an afterthought. Since the assessee was manufacturing Acid Slurry and Spent Sulphuric Acid as products, and the latter was cleared at NIL duty without proportionate reversal of credit, the conditions of Rule 57CC(1) were attracted.

Conclusion: The assessee was liable to reverse 8% of the value of the goods cleared at NIL rate of duty under Rule 57CC(1), and the Revenue's contention was accepted.

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