Modvat credit once lawfully availed need not be reversed when a later exemption removes duty on the final product.

Modvat credit validly taken and utilised while the final product was dutiable is not required to be reversed merely because the product is later exempted from duty. Credit becomes available on compliance with the prescribed declaration and may be used for duty payment; the rules provide reversal only where credit was illegally or irregularly taken. The text states that such credit is indefeasible, there is no necessary co-relation between the raw material and the final product, and a later exemption notification does not compel reversal once credit has been lawfully availed and used. The refund claim was therefore maintainable and the appeal was without merit.

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Issues: Whether Modvat credit validly taken and utilised when the final product was dutiable is required to be reversed merely because the final product is subsequently exempted from duty.

Analysis: Credit under the Modvat scheme becomes available immediately on compliance with the prescribed declaration and is usable later for payment of duty on the excisable product. The governing rules do not provide for reversal of credit validly taken and utilised, except where the credit was illegally or irregularly taken. The legal position is that such credit is indefeasible and there is no necessary co-relation between the particular raw material and the final product. Once the credit had been lawfully availed and utilised at the time of clearance of dutiable final products, a later exemption notification does not compel reversal.

Conclusion: The credit was not required to be reversed and the refund claim was maintainable; the appeal was therefore without merit.

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