Full reversal of Modvat credit on exit from the scheme is required for unutilised input stocks.

When a manufacturer opts out of the Modvat Scheme and continues under an exemption notification, the credit attributable to inputs lying unutilised on the date of exit must be reversed in full. The commentary applies Rule 57C of the Central Excise Rules to state that partial reversal does not satisfy the statutory obligation where Modvat credit had already been taken on those inputs. The record illustrates a shortfall between the credit required to be reversed and the amounts actually reversed and paid, with the unpaid balance treated as recoverable.

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Issues: Whether the appellants, on opting out of the Modvat Scheme and claiming exemption, were required to reverse the credit relatable to inputs lying unutilised in stock on the date of opting out.

Analysis: The appeal turned on the scope of the reversal obligation under Rule 57C of the Central Excise Rules. The record showed that the appellants had availed Modvat credit and later opted out of the scheme with effect from 1-4-1989 while continuing to claim exemption under Notification No. 175/86. The liable credit had to be reversed in relation to the inputs remaining unutilised as on the date of opting out. On the figures available, the credit required to be reversed worked out to Rs. 38,893.63, whereas only Rs. 22,959.32 had been reversed and a further Rs. 5,954.53 paid by challan, leaving a balance of Rs. 9,979.78.

Conclusion: The appellants were bound to reverse the full credit attributable to unutilised inputs on the date of opting out, and the demand for the shortfall was upheld.

Final Conclusion: The appeal failed because the demand represented the unpaid balance of credit required to be reversed on exit from the Modvat Scheme.

Ratio Decidendi: When a dealer opts out of Modvat, credit attributable to inputs remaining unutilised on that date must be reversed in full; partial reversal does not discharge the statutory obligation.

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