Modvat credit reversal not required where credit was properly taken before exemption and stock remained in the factory.

Modvat credit validly taken and utilised before a later exemption from duty was not liable to be disallowed or reversed merely because the finished products, or the inputs and goods in stock, remained in the factory on the date of exemption. The analysis states that the scheme contained no provision requiring reversal of correctly availed credit attributable to stock at the time duty was withdrawn, and that Rule 57C did not apply because the dispute was not about wrongful credit on exempt final products. A Supreme Court decision on the dutiability of stock removed after a budget change was treated as distinguishable since it did not concern Modvat credit reversal.

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Issues: Whether Modvat credit validly taken and utilised on inputs could be disallowed or reversed merely because the finished products later became fully exempt from duty and the inputs or finished goods were lying in stock in the factory on the date of exemption.

Analysis: The credit had been correctly availed and utilised before the exemption took effect. The Tribunal's earlier decisions held that there is no provision under the Modvat scheme requiring reversal of credit attributable to inputs lying in stock at the time of withdrawal of duty, where the credit had already been rightly taken. Rule 57C, relied upon by the Revenue, was held inapplicable on the facts because the dispute was not about incorrect availment of credit on exempt final products, but about credit taken and utilised before exemption. The reliance on the Supreme Court decision concerning dutiability of stock removed after a budget change was found distinguishable as it did not concern Modvat credit reversal.

Conclusion: The Modvat credit was not liable to be disallowed or reversed, and the Revenue's challenge failed.

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