Proforma credit on eligible inputs need not be reversed when the scheme is withdrawn by notification.

Proforma credit lawfully taken on inputs received while Rule 56-A applied did not have to be reversed merely because the scheme was later withdrawn by notification. The inputs had been intended for use in manufacturing declared finished products covered by the scheme, and the manufacturer had not voluntarily opted out. Rule 56-A(3) was held inapplicable because it addressed cases of withdrawal by the manufacturer, not withdrawal by the department. The reasoning was treated as consistent with Modvat principles that credit already validly availed is not reversed solely because an item is later removed from the eligible category.

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Issues: Whether proforma credit taken on inputs lying in stock had to be reversed when the proforma credit scheme was withdrawn in respect of those inputs.

Analysis: The inputs were received when they were covered by the proforma credit scheme under Rule 56-A of the Central Excise Rules and were intended for use in the manufacture of declared finished products also covered by that scheme. The manufacturer had not opted out of the scheme; rather, the facility was withdrawn by notification. The situation was treated as analogous to cases under Modvat where credit already taken could not be reversed merely because the input was later deleted from the eligible category, and Rule 56-A(3) was held inapplicable because it operated only when the manufacturer voluntarily opted out of the scheme.

Conclusion: The proforma credit was not required to be reversed, and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Credit lawfully availed on eligible inputs cannot be reversed merely because the credit facility is subsequently withdrawn by the department, where the manufacturer has not voluntarily opted out and the inputs were received for use in covered final products.

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