Modvat credit need not be reversed when final products later become exempt, absent any irregular availment.

Validly availed Modvat credit on inputs and capital goods was not required to be reversed merely because the final products later became exempt from excise duty. The Tribunal applied the principle from Dai Ichi Karkaria and the Larger Bench ruling in Ashok Iron & Steel Fabricators, holding that credit taken and utilised during the duty-paid period remains admissible absent any illegal or irregular availment. As no irregular credit was shown, there was no legal basis for directing reversal, and the revenue challenge failed.

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Issues: Whether Modvat credit taken on inputs and capital goods was required to be reversed when the final products later became exempt from excise duty.

Analysis: The Tribunal accepted the Commissioner (Appeals)' view that the controlling principle was that credit validly availed could not be reversed merely because the final product subsequently became exempt. Reliance was placed on the Supreme Court ruling in Dai Ichi Karkaria and on the Larger Bench decision in Ashok Iron & Steel Fabricators, which held that Modvat credit availed and utilised during the duty-paid period of final products need not be reversed after later exemption. The Tribunal found no irregular availment of credit and no legal basis for directing reversal in such circumstances.

Conclusion: Reversal of Modvat credit was not required, and the revenue challenge failed.

Ratio Decidendi: Validly availed Modvat credit is not liable to reversal merely because the final products subsequently become exempt from duty, absent any illegal or irregular availment.

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