Modvat credit reversal on inputs cleared as such is linked to the original credit rate, not the removal-date rate.

For inputs cleared as such after Modvat credit has been taken, Rule 57F(1)(ii) requires reversal of the credit already enjoyed and creates a limited legal fiction only to recover that credit. The relevant duty rate is therefore the rate in force when Modvat credit was originally availed, not the rate prevailing on the date of removal. The Tribunal followed the Larger Bench view that the provision restores the duty element embedded in the credit mechanism rather than applying the contemporaneous removal rate.

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Issues: Whether, for inputs removed as such after availing Modvat credit, duty is payable at the rate prevailing on the date of removal or at the rate at which credit was originally taken.

Analysis: Rule 57F(1)(ii) creates a legal fiction treating the user of inputs as a manufacturer only for the limited purpose of recovering the credit already utilised. The provision requires reversal of the credit earlier taken on the inputs when they are cleared from the factory as such. The Tribunal followed the Larger Bench view that this mechanism is intended to restore the duty element already enjoyed through credit and, therefore, the relevant rate is the rate applicable when the credit was availed, not the rate in force on the date of removal.

Conclusion: The duty payable on inputs removed as such is the rate at which Modvat credit was taken, and not the rate prevailing on the date of removal.

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