Modvat input removal attracts duty on deemed manufacture, not mere credit reversal, when cleared as such from the factory.

Under Rule 57F(1)(ii) of the Central Excise Rules, inputs removed as such from a Modvat recipient's factory are treated by legal fiction as if they were manufactured in the factory for the limited purpose of clearance. Duty is therefore payable on the assessable value and at the rate prevailing on the date of removal, subject only to the proviso that duty cannot be less than the credit originally allowed. Mere reversal of Modvat credit is insufficient. The CEGAT, Bombay, decided the issue against the assessee and held that removal of inputs as such attracts duty as on manufactured goods.

---

---

Issues: Whether inputs removed as such under Rule 57F(1)(ii) of the Central Excise Rules were liable to duty on the assessable value and at the rate prevailing on the date of clearance, as if manufactured in the recipient factory, rather than by mere reversal of the credit originally taken.

Analysis: Rule 57F(1)(ii) permits removal of inputs on payment of appropriate duty of excise as if the inputs had been manufactured in the factory. The proviso ensures that duty shall in no case be less than the credit allowed, but the main rule contemplates a full duty levy on clearance for home consumption. The deeming fiction places the recipient of the inputs in the position of a manufacturer for the limited purpose of such removal, and the Modvat scheme is a self-contained scheme intended to allow credit for use in manufacture of the final product, not for trading in inputs as such.

Conclusion: The appellants were required to pay duty on the assessable value and at the rate prevailing on the date of removal of the inputs, and mere reversal of credit was insufficient. The issue was decided against the assessee.

Final Conclusion: The removal of inputs as such under the Modvat scheme attracts duty as on manufactured goods, and the appeal failed.

Ratio Decidendi: Where a rule creates a legal fiction treating inputs cleared as such from a Modvat recipient's factory as manufactured goods, duty is payable according to the statutory basis applicable to such deemed manufacture, subject only to the minimum credit safeguard in the proviso.

---