Modvat credit reversal follows when final products become exempt from duty, even if credit was taken earlier.

Modvat credit on inputs attributable to final products that later became exempt from duty had to be reversed under Rule 57C. The Tribunal treated the exemption status of the final product from the effective date of exemption as decisive, and held that credit already taken on inputs in stock or used for such exempted goods could not be retained even if availed before the exemption began. The appeal was rejected, and the demand for reversal of credit was upheld.

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Issues: Whether Modvat credit taken on inputs had to be reversed when the final product became exempt from duty after the credit was taken.

Analysis: The Tribunal applied the view that Rule 57C bars Modvat credit in relation to exempted final products and that the relevant consideration is the exemption status of the final product from the effective date of exemption. Where the final product becomes exempt, credit taken on inputs lying in stock or used in relation to such exempted goods is not sustainable and has to be reversed, even if the credit had been availed before the exemption came into force.

Conclusion: The appeal was rejected and the demand for reversal of Modvat credit was upheld, against the assessee.

Final Conclusion: Credit on inputs attributable to final products that became exempt could not be retained, and the lower order confirming reversal of credit was sustained.

Ratio Decidendi: When final products become exempt from duty, Modvat credit relating to inputs for such exempted goods must be reversed under Rule 57C.

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