MODVAT credit on repacked Chloropyriphos need not be reversed when duty paid on clearance exceeds the credit availed.

MODVAT credit taken on bulk Chloropyriphos repacked into retail packs and cleared on payment of excise duty did not require further reversal where the process was treated as not amounting to manufacture. The duty paid on clearance, accepted by the department, exceeded the credit availed on the input, so the payment of duty operated as reversal of the earlier credit. In these revenue-neutral circumstances, the demand for reversal could not be sustained, and the credit was held to be properly retained.

---

---

Issues: Whether MODVAT credit taken on bulk Chloropyriphos, which was repacked into retail packs and cleared on payment of duty though the process did not amount to manufacture, was required to be reversed.

Analysis: The appellant purchased Chloropyriphos in bulk, repacked it into smaller packs, affixed its brand name and cleared the goods on payment of excise duty. The duty paid on clearance was accepted by the department and was more than the credit availed on the input. In such a situation, the payment of duty at the time of clearance operates as reversal of the credit already taken, and no further reversal is warranted. The demand could not be sustained when the situation was revenue neutral and the duty paid exceeded the credit availed.

Conclusion: The credit was not required to be reversed and the demand was unsustainable; the finding was in favour of the assessee.

---