Modvat credit on inputs used for a dutiable product need not be reversed when the final product later becomes exempt.

Modvat credit validly taken and utilised on inputs for a dutiable final product does not have to be reversed merely because the final product later becomes exempt from duty. The Tribunal followed the Larger Bench view that credit lawfully earned while the product remained dutiable continues to remain admissible, including in relation to inputs in stock, in process, or contained in finished goods on the exemption date. The contrary view adopted by the lower authority was not applied, and the issue was decided in favour of the assessee.

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Issues: Whether Modvat credit validly taken and utilised on inputs used in the manufacture of a dutiable final product is required to be reversed when the final product subsequently becomes exempt from duty.

Analysis: The dispute concerned credit on inputs lying in stock, in process, or contained in finished goods on the date from which the final product became exempt. The Tribunal followed the Larger Bench ruling which held that credit legally taken and utilised while the final product was dutiable does not become liable to reversal merely because the final product is later exempted. The earlier view relied upon by the lower authority was therefore not applied.

Conclusion: The credit was not required to be reversed; the issue was decided in favour of the assessee.

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