Modvat credit recovery on later exemption of final products triggered conflicting views and was referred to a Larger Bench.

Modvat credit already taken and utilised was examined against the later exemption of the final products, with conflicting Tribunal and High Court views on whether such credit could be recovered under Rule 57C read with Rule 57F(3). One line of authority treated the credit as recoverable once the output became wholly exempt, while another held that validly availed credit could not be reopened merely because of a subsequent exemption. The order noted that any permissible recovery would more appropriately proceed as short-levy under Section 11A rather than depend only on Rule 57-I. The conflict was not finally resolved and the matter was referred for constitution of a Larger Bench.

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Issues: Whether Modvat credit already taken and utilised can be recovered when the final products subsequently become wholly exempt from duty, and whether the conflicting decisions on this question warranted reference to a Larger Bench.

Analysis: The order noted a sharp conflict in Tribunal and High Court decisions on the interaction between Rule 57C and Rule 57F(3), with one line of authority treating credit as recoverable once the final product becomes exempt, and another line holding that validly availed credit cannot be reopened merely because of a subsequent exemption. The reasoning discussed that Modvat credit is linked to duty relief on final products, that the statutory scheme must be construed strictly, and that the question had already generated references for resolution by a Larger Bench. The order also indicated that recovery, if permissible, would be supportable as short-levy under Section 11A rather than being defeated by the wording of Rule 57-I alone.

Conclusion: The controversy was not finally decided in the present order and was referred for constitution of a Larger Bench to resolve the legal conflict.

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