Modvat credit on common inputs remained admissible after timely reversal before use in exempted goods, with no substantial question of law.

Modvat credit on common inputs used for both dutiable and exempted goods remained admissible where the credit attributable to inputs for exempted products was reversed before those inputs were used, with stock entries adjusted accordingly. The Board circular was read to permit credit on a pro rata or actual basis if the attributable amount was debited before removal of the exempted final product. On those facts, the appellate reasoning was treated as consistent with the circular and the settled position, so no substantial question of law arose and the departmental appeal failed.

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Issues: Whether the assessee was entitled to retain Modvat credit on common inputs used in the manufacture of both dutiable and exempted goods when the credit had been reversed before the inputs were used for exempted goods, and whether any substantial question of law arose.

Analysis: The factual position was that the assessee had availed credit on common inputs but reversed the credit before those inputs were issued for manufacture of exempted products, with corresponding stock entries being adjusted accordingly. The Board circular clarified that credit on common inputs is admissible where the credit attributable to inputs going into exempted final products is debited before removal of the exempted final product on an actual or pro rata basis. On those facts, the reasoning of the appellate tribunal was consistent with the circular and the settled position reflected in it.

Conclusion: The assessee's claim was accepted and no substantial question of law arose; the appeal failed.

Final Conclusion: The departmental appeal was dismissed after affirming that reversal of credit before use of inputs in exempted goods preserved eligibility to the credit under the applicable circular-based scheme.

Ratio Decidendi: Where Modvat credit on common inputs is reversed before the inputs are used for exempted final products, and the applicable circular so permits, the credit remains admissible and no substantial question of law arises against that factual application.

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