Modvat credit reversal for stock goods under exemption notification was held unsustainable where no legal provision required it.

Modvat credit attributable to inputs contained in finished goods lying in stock when exemption under Notification No. 1/93 was opted for did not have to be reversed, because the notification allowed a limited benefit even where credit had been taken on inputs used in the notified goods. The finished goods in stock had been cleared on payment of duty, and no legal provision was shown requiring mandatory reversal of the credit embedded in those goods. In the absence of such a provision, denial of the exemption benefit was unsustainable, and the assessee's claim was accepted.

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Issues: Whether Modvat credit attributable to inputs contained in finished goods lying in stock on the date of opting for exemption under Notification No. 1/93 was required to be reversed.

Analysis: The exemption notification permitted a limited benefit even where the manufacturer had availed Modvat credit on inputs used in the notified goods. The finished goods in stock had been cleared on payment of duty, and no provision was shown to require mandatory reversal of the credit attributable to the inputs embedded in those goods. In the absence of any legal provision compelling such reversal, the assessee could not be denied the benefit claimed.

Conclusion: The requirement to reverse the Modvat credit was not sustainable and the issue was decided in favour of the assessee.

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