MODVAT credit lapses on opting out of the scheme and cannot be used during the exempt period.

MODVAT credit lying in RG-23A Part II was treated as lapsing when an assessee opted out of the scheme and shifted to exempt clearances. The accumulated credit could not be utilised during the exempt period, and the later attempt to use that balance for duty payment was held impermissible. The reasoning stated that the election to leave MODVAT took immediate legal effect and did not depend on departmental acceptance before the credit lost utility. Contrary authority was distinguished on facts, and the text concludes that the credit was unavailable unless the statutory scheme expressly allowed revival or use.

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Issues: Whether the MODVAT credit balance lying in RG-23A Part II lapsed when the assessee opted out of the MODVAT scheme and whether such credit could be utilised during the period when the assessee worked under exemption before opting back into the scheme.

Analysis: The credit standing in the account at the time of opting out of MODVAT was treated as incapable of further use once the assessee chose to operate under exemption. The subsequent attempt to use the accumulated balance for payment of duty during the interregnum was held impermissible. The reasoning proceeded on the basis that the assessee's election to opt out had immediate legal effect and there was no requirement of departmental acceptance before the consequence of lapse followed. The reliance placed on contrary authority was found distinguishable on facts, and the credit was held to be unavailable for use against duty on exempt clearances.

Conclusion: The MODVAT credit balance lapsed on opting out of the scheme, and no credit could be utilised during the exempt period; the finding was against the assessee and in favour of the Revenue.

Final Conclusion: The impugned order was sustained and the appeal stood dismissed because the assessee had no enforceable right to use the lapsed MODVAT credit after opting out of the scheme.

Ratio Decidendi: Once an assessee opts out of MODVAT and operates under exemption, the accumulated credit in the prescribed account lapses and cannot be revived for subsequent utilisation unless the statutory scheme expressly permits it.

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