Modvat credit on inputs remains valid when final product later becomes exempt; no reversal needed solely for later exemption.

Input credit lawfully taken and utilised when a final product was still dutiable does not have to be reversed merely because the product later becomes exempt. The text applies the principle that a manufacturer is not expected to maintain separate input accounts in anticipation of a future exemption, and that past credit taken for dutiable clearances remains valid. On that basis, the assessee was not required to reverse the credit or debit 8% of the exempted clearances under Rule 57CC.

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Issues: Whether credit validly taken and utilised on inputs during the period when the final product was dutiable was required to be reversed merely because the final product became exempt on a later date, or whether the assessee was liable to debit 8% of the exempted clearances under Rule 57CC.

Analysis: The inputs were received and credit was taken during the period when the merceriser machine was dutiable. The subsequent exemption of the finished machine did not alter the fact that the credit had been lawfully availed and utilised at a time when the product was chargeable to duty. The Court applied the principle that a manufacturer cannot be expected to maintain a separate account for inputs received before the exemption was introduced in anticipation of that future change, and held that credit already taken for dutiable clearances is not liable to be reversed merely because the final product later becomes exempt.

Conclusion: The assessee was not required to reverse the credit or debit 8% of the value of the exempted machinery under Rule 57CC; the appeal was allowed in favour of the assessee.

Ratio Decidendi: Credit lawfully taken and utilised on inputs while the final product was dutiable cannot be reversed solely because the final product becomes exempt at a later stage.

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