Modvat credit need not be reversed for mere balance-sheet write-off when inputs remain in stock and are used in manufacture.

Mere accounting write-off of inputs in the balance sheet does not require reversal of Modvat credit where the inputs remain in stock and continue to be used in manufacture. The Tribunal treated the write-off as a revaluation entry, not evidence that the inputs had ceased to exist or were removed from production, and held that a change in book value does not affect credit already lawfully availed. On that basis, reversal was not warranted and the demand was unsustainable.

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Issues: Whether Modvat credit taken on inputs was liable to reversal merely because the inputs were shown as written off in the balance sheet, when the inputs continued to remain in stock and were used in manufacture.

Analysis: The Tribunal held that the entries in the balance sheet amounted only to a revaluation of the inputs and did not establish that the inputs had ceased to exist or were not used in production. It relied on the settled position that where inputs remain in stock, mere reduction in value or accounting write-off does not affect the quantum of Modvat credit already availed. Since the credit had been lawfully taken and the value change did not create any additional entitlement or reduce the credit already earned, reversal was not warranted.

Conclusion: Reversal of Modvat credit was not required. The demand was unsustainable and the appeal was allowed.

Ratio Decidendi: Mere accounting write-off or revaluation of inputs does not by itself trigger reversal of Modvat credit where the inputs remain in stock and continue to be used in manufacture.

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