Modvat credit already validly taken cannot be reversed merely because the final product later leaves the scheme.

Valid Modvat credit, once lawfully taken on inputs in stock, could not be reversed merely because the final product was later withdrawn from the scheme. The applicable rules contained no specific provision requiring retrospective recovery in that situation, and they did not require one-to-one correlation between particular inputs and the finished product. The withdrawal of the final product from the notification did not alter the status of credit already validly availed. The Revenue's proper remedy was to demand duty when the inputs were actually used or cleared, not to deny or recover the credit itself.

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Issues: Whether Modvat credit already taken on inputs lying in stock could be recovered or reversed after the Modvat facility for the final product was withdrawn, and whether the Revenue could instead demand duty only when such inputs were later used or cleared.

Analysis: Credit under the Modvat scheme acquires finality once the conditions for taking credit are satisfied. There is no specific provision in the Modvat rules requiring reversal merely because the final product is later taken out of the scheme, nor is a one-to-one correlation prescribed between particular inputs and the final product manufactured. The withdrawal of the notification affecting the final product does not alter the status of inputs on which credit has already been validly taken. The deeming and utilisation provisions under Rule 57F continue to govern such inputs, and the proper course for the Revenue is to levy duty when the inputs are actually taken into use or cleared, not to deny or recover credit retrospectively.

Conclusion: The credit was correctly taken and utilised, and recovery or reversal of the Modvat credit was not permissible. The Revenue's remedy, if any, was to demand duty when the inputs were subsequently used or removed.

Final Conclusion: The appeal failed, and the assessee retained the benefit of the credit already taken, while the Revenue was left to pursue duty only at the stage of actual use or clearance of the inputs.

Ratio Decidendi: Valid Modvat credit, once lawfully taken, cannot be reversed merely because the final product is later withdrawn from the scheme, in the absence of a specific rule authorising such recovery.

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