Reversal of Modvat credit bars Rule 57CC demand for exempted goods where attributable input credit was already debited.

Reversal of Modvat credit attributable to inputs used in exempted final products prevents the credit from being treated as continued availment for the relevant period. On that basis, a demand under Rule 57CC of the Central Excise Rules, premised on such continued credit, was not sustainable where the assessee had already debited the credit in RG-23A Part-II. The cited circulars and precedents supported the view that once the attributable credit was reversed, recovery under Rule 57CC could not be maintained, and the impugned demand was set aside.

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Issues: Whether duty demand under Rule 57CC of the Central Excise Rules was sustainable when the assessee had reversed the Modvat credit attributable to inputs used in exempted final products.

Analysis: The assessee had already reversed the credit taken on inputs used in the manufacture of exempted goods by debit entries in RG-23A Part-II. Once such credit was reversed, the inputs could not be treated as having continued credit availment for exempted final products. The cited circular and decisions supported the view that, for the relevant period, recovery under Rule 57CC was not attracted in such circumstances.

Conclusion: The duty demand was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order was annulled and the appeal succeeded.

Ratio Decidendi: Where credit attributable to inputs used in exempted goods has been reversed, a demand premised on continued availment of such credit under Rule 57CC cannot be sustained for the relevant period.

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