MODVAT credit reversal not required where duty-paid clearances preceded Notification No. 1/93 exemption use.

MODVAT credit did not have to be reversed when an assessee began clearances under Notification No. 1/93, because the inputs, scrap and finished goods had already been duly cleared, reversed where necessary, or were no longer lying in the factory. Rule 57F(1)(i) was not attracted since no inputs on which credit had been taken remained as such, and no non-duty-paid goods were left in stock. The notification was also not treated as operating retrospectively from the start of the financial year merely because later clearances fell within the exemption limit.

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Issues: Whether the revenue could require reversal of MODVAT credit on inputs, finished goods and scrap remaining in the factory when the assessee commenced clearances under Notification No. 1/93.

Analysis: The assessee had already discharged duty on the goods at the applicable rate before availing the exemption under Notification No. 1/93. The unutilised inputs, scrap and stampings had been cleared on payment of duty or reversed where appropriate before the assessee began clearances under the notification. At that point, no inputs on which MODVAT credit had been taken were lying as such, and no non-duty-paid goods remained in the factory. Rule 57F(1)(i) was therefore not attracted. The notification also did not require the benefit to be treated as operative from the first day of the financial year merely because clearances later fell within the exemption limit.

Conclusion: Reversal of MODVAT credit was not required and the revenue's appeal failed.

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