Modvat credit once validly earned cannot be reversed merely because the input or final product is later withdrawn from the scheme.

Modvat credit validly taken on eligible inputs was treated as final once the inputs were received in the factory and the assessee was otherwise entitled to credit. The later withdrawal of the Modvat facility, or deletion of either the input or the finished product from the scheme, did not by itself authorise reversal or recovery of credit already earned and lawfully utilised, in the absence of an express rule permitting such recovery. The Tribunal therefore held that a demand for reversal was not sustainable where the credit had been validly taken and used in relation to the specified final product.

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Issues: Whether Modvat credit validly taken on eligible inputs before withdrawal of the Modvat facility could be reversed or demanded back merely because the inputs remained unutilised in stock on the date the inputs or finished products were deleted from the scheme.

Analysis: The Tribunal held that under the Modvat scheme the relevant point for availing credit is the time when the inputs are received in the factory and the assessee is otherwise eligible to take credit. Once credit is lawfully taken on specified inputs and the inputs are used in relation to the manufacture of the specified final product, the subsequent withdrawal of the notification or deletion of either the input or the final product from the scheme does not authorise reversal of credit in the absence of any specific rule providing for such recovery. The decisions relied upon consistently treated the credit as having attained finality when validly taken, and rejected the argument that later withdrawal of the scheme could retroactively nullify credit already earned and utilised lawfully.

Conclusion: The demand for reversal of Modvat credit was not sustainable and the assessee was entitled to retain the credit already taken and utilised.

Ratio Decidendi: Modvat credit, once validly taken on eligible inputs and lawfully utilised for the specified final product, cannot be reversed merely because the relevant input or final product is later withdrawn from the Modvat scheme, unless the rules expressly provide for such recovery.

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