Transitional Modvat credit may include balance set-off under a rescinded exemption notification when entitlement is later upheld.

Credit accumulated under Notification No. 103/61 does not lapse merely because the notification is rescinded, if the underlying entitlement is later upheld. Where a dealer opts for Modvat after the scheme's introduction and the set-off claim is resolved only afterwards, the accumulated credit may be treated as lying in balance immediately before the relevant Modvat declaration. On that basis, the transitional facility under Rule 57H(3) permits transfer of the credit into the Modvat account, and prior Tribunal authority supporting transfer of balance credit was followed while the contrary precedent was distinguished on facts.

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Issues: Whether the credit balance earned under Notification No. 103/61, after the notification had been rescinded, could be transferred to the Modvat credit account under Rule 57H(3) of the Central Excise Rules.

Analysis: The credit earned under the notification did not lapse merely because the notification was rescinded. The respondent had opted for Modvat soon after its introduction, but the entitlement under Notification No. 103/61 remained in dispute and was resolved only later. In that situation, the respondent could seek the transitional facility only after the dispute was concluded, and the accumulated set-off had to be treated as credit lying in balance immediately before the relevant Modvat declaration. The earlier Tribunal view supporting transfer of balance credit under the transitional provision was followed, while the revenue's reliance on a different precedent was distinguished on facts.

Conclusion: The accumulated credit was transferable under Rule 57H(3), and the order allowing such transfer was upheld.

Ratio Decidendi: Credit accumulated under a rescinded exemption notification does not lapse where the entitlement is later upheld, and such credit may be carried into Modvat under the transitional provision if it is treated as lying in balance immediately before the declaration.

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