Modvat credit need not be reversed where duty on finished goods is remitted and destruction is permitted.

Remission of Central Excise duty on expired finished goods, coupled with permission to destroy those goods, did not justify reversal of Modvat credit on the inputs used in their manufacture. The Tribunal accepted that once duty on the finished goods had been remitted and destruction was permitted, the corresponding input credit could not be demanded back. A Board circular on the subject supported this position, and the manufacturer was therefore not required to reverse the Modvat credit.

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Issues: Whether the manufacturer was required to reverse Modvat credit on inputs used in finished goods that were permitted to be destroyed after remission of Central Excise duty.

Analysis: The appeal turned on whether remission of duty on expired finished goods could still be accompanied by a direction to reverse Modvat credit. The Tribunal accepted the view that where duty on the finished goods had been remitted and destruction was permitted, the corresponding Modvat credit on inputs used in those goods could not be demanded back. The Board's circular issued on the subject also supported this position.

Conclusion: The manufacturer was not required to reverse the Modvat credit on the finished goods allowed to be destroyed after remission of duty.

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