1994 (4) TMI 195 - AT - Central Excise

Tribunal rules on MODVAT credit reversal for exempt products, preventing duty cascading

The Tribunal ruled that MODVAT credit cannot be reversed for inputs used in exempt finished products if credit was correctly taken and utilized for duty ... Modvat on inputs Issues:1. Reversal of MODVAT credit for exempted finished products.2. Interpretation of MODVAT Rules regarding reversal of credit.3. Recovery of duty on inputs lying in stock post-exemption.Detailed Analysis:1. The appeal questioned whether MODVAT credit could be reversed for inputs used in a finished product that became exempt. The appellant argued citing precedents, while the respondent supported the lower authority's decision based on a different ruling.2. The Tribunal analyzed the MODVAT Rules, emphasizing that once credit is correctly taken and utilized for duty payment on finished products, reversal is not provided for. The absence of provisions for batch-to-batch correlation indicates the scheme's design to prevent duty cascading. The Tribunal noted the time limit for credit recovery under Rule 57-I and highlighted that Rule 57-I does not allow recovery when credit was correctly taken and utilized.3. The Tribunal referred to Rule 57F(1), stating that inputs not used in specified finished products lose their duty-paid status. It cited a previous case where duty was imposed on such inputs. The Tribunal highlighted Rule 57F(2) allowing removal of inputs under certain conditions, emphasizing that duty must be paid on these inputs if they are used for other purposes. The ruling dismissed the appeal and referred the matter to the President for a Larger Bench due to conflicting views on the issue.