Export incentive credit reversal must be limited to input stage credit; intermediate stage Modvat on compounded rubber needs fresh quantification.

Export incentive scheme credit reversal was to be computed by reference to the manufacturer as a whole, but the credit actually reversed had to be limited to input stage credit at the first stage of manufacture. Modvat credit taken on compounded rubber was treated as intermediate stage credit, not input stage credit, and therefore had to be reduced to the input stage level in line with the notification and handbook procedure. Because the original computation was insufficiently explained and the assessee had not been given a proper hearing, fresh quantification was required, and the matter was remitted for reconsideration after reasonable opportunity of hearing.

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Issues: Whether Modvat credit relatable to compounded rubber had to be reduced to input stage credit for the purpose of reversal under the export incentive scheme, and whether the matter required remand for fresh consideration after granting hearing.

Analysis: The scheme was held to operate with reference to the manufacturer as a whole, while the credit to be reversed had to be confined to input stage credit at the first stage of manufacture. Modvat availed on compounded rubber was treated as intermediate stage credit and not input stage credit, and therefore had to be brought down to the level of input stage credit in accordance with the notification and the handbook procedure. The original order was also found to have proceeded without adequately explaining the computation and without giving a proper opportunity to the assessee, making fresh determination necessary.

Conclusion: The assessee's contention on the correct basis of computation was accepted in principle, and the matter was remitted to the original authority for fresh quantification after giving a reasonable opportunity of hearing.

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