Modvat reversal must first be adjusted against available credit balance before any PLA payment is required.

On switching from Modvat to the full exemption scheme, Rule 57H(5) required reversal of credit relating to inputs in stock and inputs contained in finished goods, but that adjustment had to be made first against the balance available in the credit account. Payment through PLA arose only if the credit balance was insufficient. As sufficient balance existed in RG23A Part II, insisting on PLA payment was inconsistent with the rule, and the assessee was not required to pay the retrenched credit through PLA. The Revenue's appeal was rejected.

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Issues: Whether, on opting out of the Modvat scheme and moving to the full exemption scheme, the assessee was required to reverse the credit relating to inputs in stock and inputs contained in finished goods by payment through PLA even when sufficient balance was available in the RG23A Part II credit account.

Analysis: Rule 57H(5) required retrenchment of credit on inputs lying in stock or contained in finished goods when an assessee switched out of Modvat. However, the adjustment was to be made first against the balance available in the credit account, and payment through PLA arose only if the available credit balance was insufficient. On the facts, sufficient balance existed in the credit account, so forcing payment through PLA was inconsistent with the rule.

Conclusion: The assessee was not required to pay the retrenched credit through PLA when sufficient balance was available in the credit account; the Revenue's appeal was rejected.

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