Refund cannot be denied for unreversed Modvat credit when duty becomes refundable after an exemption finding.

Refund of duty on electrical stampings and laminations could not be refused merely because the manufacturer had not first reversed Modvat credit. Once exemption under Notification No. 64/86-C.E. was accepted, the duty paid on the goods became refundable, and any reversal or adjustment of credit was only a consequential matter. The excise authorities could pursue reversal against the manufacturer after refund was granted, but withholding refund on the basis of unreversed credit was not justified. Rule 57E supported adjustment of credit where a duty refund arose subsequently.

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Issues: Whether refund of duty paid on electrical stampings and laminations could be denied on the ground that the manufacturer had not first reversed the Modvat credit.

Analysis: The dispute concerning eligibility for exemption under Notification No. 64/86-C.E. had already been resolved in favour of the assessee. Once that position was accepted, duty paid on the goods became refundable. The liability to reverse Modvat credit, if any, was only a consequential matter and could be pursued by the excise authorities against the manufacturer after grant of refund. Refund could not be withheld on the premise that credit had not yet been reversed, because the goods continued to be duty paid until refund was actually sanctioned. Support was also drawn from Rule 57E, which contemplates adjustment of credit where refund of duty arises subsequently.

Conclusion: The refund claim was admissible and could not be rejected merely because the manufacturer had not reversed the Modvat credit first.

Final Conclusion: The assessee's refund claim succeeded, while the authorities were left at liberty to seek reversal or adjustment of credit from the manufacturer after refund was granted.

Ratio Decidendi: A refund of duty consequent upon an exemption finding cannot be denied merely because Modvat credit taken by the manufacturer on inputs has not yet been reversed; reversal or adjustment of credit is consequential to the grant of refund, not a precondition for it.

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