MODVAT credit on inputs survives later exemption of final goods where no specific reversal rule applied.

MODVAT credit validly taken on inputs and packing material need not be reversed merely because the final product later becomes exempt from duty. The commentary treats the absence of a specific reversal provision in the earlier rule framework as decisive, noting that the later insertion of a rule dealing expressly with exempted goods indicates a change in law rather than an existing requirement. It also records that the Larger Bench ruling in Ashok Iron and Steel Fabricators, as approved by the Supreme Court, was treated as the controlling authority, while Albert David Ltd. was not regarded as displacing that position. The result was that the assessee retained the credit already taken.

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Issues: (i) Whether MODVAT credit taken on inputs and packing material had to be reversed or denied merely because the final product became exempt from duty. (ii) Whether the decision in Albert David Ltd. supported the Revenue, or whether the Larger Bench ruling in Ashok Iron and Steel Fabricators, as approved by the Supreme Court, governed the controversy.

Issue (i): Whether MODVAT credit taken on inputs and packing material had to be reversed or denied merely because the final product became exempt from duty.

Analysis: The exemption of the finished product did not, by itself, justify rejection of credit already validly taken on inputs or packing material under the then applicable scheme. The Court accepted the reasoning that the later insertion of a specific provision dealing with credit on inputs used for exempted goods showed that the contrary position was not inherent in the earlier rule framework. The appellate authorities were found to have correctly followed the larger bench view on the availability of credit.

Conclusion: The assessee was entitled to retain the credit already taken, and reversal was not warranted on the facts of these appeals.

Issue (ii): Whether the decision in Albert David Ltd. supported the Revenue, or whether the Larger Bench ruling in Ashok Iron and Steel Fabricators, as approved by the Supreme Court, governed the controversy.

Analysis: Albert David Ltd. was held not to be contrary to the larger bench view in Ashok Iron and Steel Fabricators, because it turned on the later insertion of a specific rule dealing with exempted goods. The Court noted that several High Courts had followed Ashok Iron and Steel Fabricators and agreed with the detailed reasoning that treated that line of authority as controlling. On that basis, the Revenue's reliance on Albert David Ltd. was rejected.

Conclusion: The Larger Bench decision in Ashok Iron and Steel Fabricators governed the issue, and Albert David Ltd. did not the Revenue.

Final Conclusion: The appeals raised by the Revenue failed on the core question of credit reversal after exemption of the final product, and the Tribunal's orders were left undisturbed.

Ratio Decidendi: In the absence of a specific provision requiring reversal, credit validly taken on inputs or packing material cannot be denied merely because the final product later becomes exempt from duty; the later rule expressly dealing with exempted goods marks the relevant change in law.

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