Modvat credit reversal on common inputs was held impermissible after payment of 8% on exempt clearances.

Where exempt tractors and dutiable tractors were manufactured using common inputs on which Modvat credit had been taken, payment of 8% of the value of exempt clearances under Rule 57CC was treated as sufficient compliance. Denial of Modvat credit in addition to that payment was held impermissible, and the Revenue could not require reversal of credit on the same inputs. The demand for reversal was therefore unsustainable and was set aside in favour of the assessee.

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Issues: Whether the Revenue could demand reversal of Modvat credit on inputs used in exempt tractors when the assessee had already paid 8% of the value of the exempt clearances under Rule 57CC.

Analysis: The tractors below 1800 CC were exempt, while the assessee manufactured both dutiable and exempt varieties using inputs on which Modvat credit had been taken. The assessee had paid 8% of the value of the exempted tractors at the time of clearance. In these circumstances, it was held that denial of Modvat credit in addition to levy of 8% on the exempted product was not permissible in law, and the Revenue could not insist on reversal of credit on the same inputs.

Conclusion: The demand for reversal of Modvat credit was unsustainable and was set aside; the issue was decided in favour of the assessee.

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