Modvat credit reversal on opting for small scale exemption was held sufficient for inputs in stock and waste

On opting out of the Modvat scheme and taking small scale exemption, a manufacturer was required under Rule 57H(7) to reverse credit attributable to inputs lying in stock or used in finished excisable goods lying in stock on the date the exemption option was exercised. The reversal accepted by the appellate authority was found to include credit relatable to inputs contained in waste, and the Revenue produced no evidence to displace that finding. Accordingly, the reversal already made was treated as sufficient and no further demand was warranted.

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Issues: Whether, on opting out of the Modvat scheme and taking small scale exemption, the manufacturer was required to reverse credit attributable to inputs contained in waste lying in stock.

Analysis: Rule 57H(7) required reversal of an amount equivalent to the credit allowed in respect of inputs lying in stock or used in finished excisable goods lying in stock on the date the exemption option was exercised. The respondents had reversed the amount found by the appellate authority to include the credit relatable to inputs contained in waste. The Revenue challenged that finding but produced no evidence to dislodge it.

Conclusion: The reversal made by the respondents satisfied the rule, and no additional demand was justified; the issue is decided against the Revenue.

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