Modvat credit reversal for captive use of rectified spirit was unwarranted after prescribed 8% reversal under Rule 57CC.

Modvat credit on duty-paid molasses used to manufacture rectified spirit was not required to be reversed merely because the rectified spirit was captively consumed in making exempted country liquor. The Tribunal applied Rule 57CC on the basis that captive clearance of exempted goods can be treated as a deemed sale, and the prescribed 8% reversal functions as a presumptive amount linked to the value of the exempted goods. Since the assessee had already reversed 8% of the price of rectified spirit on a comparable market-value basis, the absence of an actual factory-gate sale did not support any further demand for credit reversal.

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Issues: Whether Modvat credit taken on duty paid molasses used for manufacture of rectified spirit was reversible merely because rectified spirit was captively consumed for manufacture of exempted country liquor, notwithstanding reversal of 8% of the price of rectified spirit.

Analysis: The appellant manufactured rectified spirit from duty paid molasses and used that rectified spirit in the manufacture of country liquor as well as denatured spirit. The rectified spirit was not sold at the factory gate, but the appellant reversed 8% of its price on the basis of comparable market price. The Tribunal applied the principle that, for the purpose of Rule 57CC, clearance of exempted goods for captive consumption can constitute a deemed sale, and the prescribed 8% operates as a presumptive amount based on the value of the exempted goods. On that basis, the absence of an actual sale of rectified spirit did not justify a further demand for reversal of credit on molasses.

Conclusion: The demand for reversal of Modvat credit was unsustainable and the issue was answered in favour of the assessee.

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