Modvat credit on duty-paid fabrics allowed reversal-only treatment on clearance as such, supporting waiver of pre-deposit.

Credit validly taken on duty-paid grey fabrics was treated as available under the Modvat scheme regardless of whether the inputs were bought out or manufactured in-house, because both qualified as inputs under Rule 57A. Clearance of such inputs as such for home consumption attracted Rule 57F(12)(c), requiring only reversal of the credit taken before removal. The Tribunal also noted that, under the proviso to Rule 57F(12), the scheme did not require one-to-one correlation for utilisation of credit during the relevant period. On that basis, a strong prima facie case was found for full waiver of pre-deposit and stay of recovery pending appeal.

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Issues: Whether the appellant had made out a prima facie case for full waiver of pre-deposit and stay of recovery in relation to duty and penalty demanded on clearance of duty-paid grey fabrics as such.

Analysis: The appeal concerned clearance of grey fabrics on which Modvat credit had already been availed, whether the fabrics were bought out or manufactured in-house. The Tribunal held that the source of the inputs was immaterial once duty had been paid and credit validly taken, because both categories qualified as inputs under Rule 57A of the Central Excise Rules. It further held that clearance of such inputs as such for home consumption was governed by Rule 57F(12)(c), which required only reversal of the credit taken before removal. The Tribunal also accepted that, by virtue of the proviso to Rule 57F(12), the Modvat scheme did not require one-to-one correlation for utilisation of credit in the relevant period.

Conclusion: The appellant had shown a strong prima facie case for full waiver of pre-deposit and for stay of recovery during the pendency of the appeal.

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