Modvat credit remains admissible where duty was actually paid on final products, despite a later exemption finding.

Modvat credit on inputs was not to be denied merely because the final products were later held exempt, where duty had in fact been paid on those products pursuant to judicial directions. Rule 57A of the Central Excise Rules, 1944 allowed credit on inputs used in final products charged to duty, and the earlier appellate order allowing credit had already attained finality. As that order had not been shown to be challenged, the credit remained admissible and the Revenue's appeal failed.

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Issues: Whether Modvat credit on inputs could be denied merely because the final products were subsequently held exempt, when duty had in fact been paid on such final products pursuant to judicial directions.

Analysis: The entitlement to Modvat credit was already accepted in the earlier appellate order and had attained finality. Rule 57A of the Central Excise Rules, 1944 permitted credit on inputs used in final products charged to duty. Since duty had actually been paid on the manufactured final products, denial of credit was not justified merely on the ground of a later finding that the goods were exempt. The earlier decision allowing credit was also not shown to have been challenged.

Conclusion: Modvat credit was held admissible and the Revenue's appeal was rejected.

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