Modvat credit reversal on exemption requires full attributable liability payment, with any shortfall discharged in cash.

Rule 57H(7) required a manufacturer opting for exemption after availing Modvat credit to reverse the entire credit attributable to inputs and finished goods in stock on the date of opting, and any shortfall had to be paid in cash. The provision allowed adjustment only to the extent of the available Modvat balance and did not permit waiver of the remaining liability merely because the credit balance was insufficient. The PLA debit was therefore valid and the refund claim was not maintainable.

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Issues: Whether, on opting for exemption under Notification No. 8/99, the assessee was liable under Rule 57H(7) to pay the balance amount equivalent to the Modvat credit attributable to inputs and finished goods lying in stock, and whether refund of the amount debited in PLA was admissible.

Analysis: Rule 57H(7) required a manufacturer opting for exemption to pay an amount equivalent to the credit allowed in respect of inputs or finished goods lying in stock on the date of exercise of the option. The provision permitted adjustment against the credit balance in the Modvat account, and any shortfall had to be discharged by payment in cash. The rule did not contemplate waiver of the balance liability merely because the credit balance was insufficient.

Conclusion: The assessee was liable to pay the balance amount, the debit in PLA was valid, and the refund claim was not maintainable.

Final Conclusion: The appeal was rejected and the refund claim stood disallowed.

Ratio Decidendi: Where a manufacturer opts for exemption after having taken Modvat credit, Rule 57H(7) obliges payment of the entire attributable credit liability, and any shortfall beyond the available credit balance must be paid in cash.

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