Modvat credit reversal can preserve exemption where input credit is wiped out before clearance of exempt final products.

Reversal of Modvat credit in the RG 23 account before removal of the exempted final product was treated as satisfying the condition in Notification No. 208/83-C.E. that no input credit under Rule 56A or Rule 57A had been availed, so the prior temporary taking of credit did not by itself defeat the exemption. On that basis, the specified wires manufactured from duty-paid wire rods remained eligible for exemption, and once the final product was treated as exempt, its clearances could not be counted for the purpose of Notification No. 175/86-C.E. The denial of exemption was therefore unsustainable.

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Issues: Whether the assessee was entitled to the benefit of Notification No. 208/83-C.E. after reversing the Modvat credit taken on duty-paid inputs, and whether the clearances of the exempted final products were liable to be counted for the purpose of Notification No. 175/86-C.E.

Analysis: The Notification No. 208/83-C.E. granted exemption to specified wires manufactured from duty-paid wire rods, subject to the condition that no credit of duty paid on inputs had been availed under Rule 56A or Rule 57A of the Central Excise Rules, 1944. The Tribunal held that reversal of the credit entry in the RG 23 account before removal of the exempted final product satisfied the condition, with the result that the credit stood effectively wiped out in the assessee's accounts. On that basis, the fact that credit had initially been taken could not by itself defeat the exemption. Once the final product was treated as exempt, its clearances could not be included for the purpose of Notification No. 175/86-C.E.

Conclusion: The assessee was entitled to the exemption under Notification No. 208/83-C.E., and the benefit could not be denied merely because Modvat credit had earlier been taken and later reversed; the impugned denial of exemption was unsustainable.

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