Modvat credit cannot be carried forward for inputs consumed in exempt production when duty is later restored.

Modvat credit is admissible only on inputs used in the manufacture of dutiable goods, so credit attributable to inputs consumed in exempt clearances does not survive for later carry forward when duty is re-imposed. Credit could be recognised only for inputs or finished stock actually in existence when the goods again became dutiable, not for an unutilized balance linked to past exempt production. On these facts, the claim to carry forward the earlier Modvat credit was rejected as not sustainable.

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Issues: Whether Modvat credit accumulated on inputs used in the manufacture of goods that subsequently became exempt from duty could be carried forward and utilised after duty was re-imposed.

Analysis: Modvat credit is admissible only on inputs used in the manufacture of dutiable goods. Where the inputs had already been consumed in the manufacture of exempted final products, no credit survived for carry forward merely because duty was later restored on the final product. Credit allowed in respect of inputs or finished stock in existence when the goods again became dutiable was distinct from any unutilized balance attributable to past exempt clearances. The cited decisions did not assist the appellant on these facts.

Conclusion: The claim to carry forward the earlier unutilized Modvat credit was not sustainable and was rejected.

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