Modvat credit under compounded levy scheme remains available for goods outside the scheme; lapse applies only product-wise.

Where a compounded levy scheme applied only to non-alloy steel ingots, Modvat credit attributable to alloy steel ingots could still be retained and used for duty payment on relevant stock cleared later. The lapse provision under Rule 57F(17)(c) operated only to the extent the credit related to goods covered by the scheme, so credit linked to alloy steel ingots did not lapse merely because the assessee had entered the compounded levy regime. The credit position had to be examined product-wise, and no reversal was required for credit outside the scheme.

---

---

Issues: (i) Whether Modvat credit could be used for payment of duty on stocks manufactured before opting for the compounded levy scheme and cleared later when the assessee was operating under that scheme; (ii) whether the Modvat credit balance standing to the assessee's account on 1.8.1997 lapsed under Rule 57F(17)(c) of the Central Excise Rules, 1944 so as to be unavailable for payment of duty on all excisable goods.

Issue (i): Whether Modvat credit could be used for payment of duty on stocks manufactured before opting for the compounded levy scheme and cleared later when the assessee was operating under that scheme.

Analysis: The compounded levy scheme was applicable only to non-alloy steel ingots under section 3-A of the Central Excise Act, 1944 and the relevant notifications. The record showed that the assessee had manufactured both non-alloy and alloy steel ingots, but had utilized credit only in relation to inputs used for alloy steel ingots. No provision prohibited use of accumulated credit for goods outside the ambit of the compounded levy scheme, and there was no authority to demand reversal of such credit in respect of alloy steel ingots.

Conclusion: The assessee was entitled to use the Modvat credit for duty on the relevant stock and the issue is decided against the Revenue.

Issue (ii): Whether the Modvat credit balance standing to the assessee's account on 1.8.1997 lapsed under Rule 57F(17)(c) of the Central Excise Rules, 1944 so as to be unavailable for payment of duty on all excisable goods.

Analysis: Rule 57F(17)(c) and (d) caused lapse of unutilized credit only in relation to the goods to which the compounded levy scheme applied. Since that scheme operated only for non-alloy steel ingots, the credit attributable to alloy steel ingots did not lapse. The demand for recovery of such credit was therefore unsupported by the rule structure.

Conclusion: The credit balance did not lapse to the extent it related to alloy steel ingots, and this issue is decided against the Revenue.

Final Conclusion: The appeal failed because the credit position had to be examined product-wise, and the assessee could retain and use Modvat credit attributable to alloy steel ingots notwithstanding the compounded levy applicable to non-alloy steel ingots.

Ratio Decidendi: Where a compounded levy scheme applies only to a specified category of goods, the lapse of Modvat credit under the transitional rule operates only in relation to that category and does not extinguish credit attributable to other goods outside the scheme.

---