Modvat credit reversal under Rule 57CC requires actual quantification of credit on inputs used for exempted goods.

Duty demand under Rule 57CC could not be mechanically sustained where the assessee was willing to reverse the actual Modvat credit attributable to inputs used in exempted goods. The Tribunal held that, in the absence of an effective machinery to recover the percentage amount contemplated by the rule, the correct course was to quantify the precise credit availed on such inputs. The confirmation of duty was set aside and the matter remanded for quantification of the credit relatable to exempted goods; the penalty was also set aside.

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Issues: Whether the duty demand and penalty under Rule 57CC could be sustained where the assessee offered to reverse the Modvat credit relatable to inputs used in exempted goods, and whether the matter required quantification of the actual credit availed.

Analysis: The assessee proposed reversal of the actual Modvat credit taken on inputs used in the manufacture of exempted products and had already deposited part of the amount. The Tribunal followed its earlier view that, in the absence of an effective machinery for recovery of the percentage amount contemplated under Rule 57CC, the demand could not be mechanically sustained as such. Since the dispute turned on the actual credit attributable to exempted goods, the proper course was to determine the precise amount of credit availed on such inputs.

Conclusion: The impugned order confirming duty was set aside and the matter was remanded to the original adjudicating authority for quantification of the actual Modvat credit relatable to exempted goods. The penalty was also set aside.

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