Modvat credit reversal not required for waste and scrap stock when full exemption option was exercised.

Modvat credit was not required to be reversed under Rule 57H(7) in respect of waste and scrap lying in stock when the assessee opted for full exemption. The rule applies to credit attributable to inputs in stock and to inputs contained in finished excisable goods lying in stock on the date of exercising the exemption option. Waste and scrap generated during manufacture of metal containers were not treated as final products for this purpose, so the transitional reversal provision did not extend to inputs contained in such waste and scrap. The demand for reversal of credit was therefore unsustainable.

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Issues: Whether Modvat credit was required to be reversed under Rule 57H(7) of the Central Excise Rules in respect of waste and scrap lying in stock when the assessee opted for full exemption.

Analysis: Rule 57H(7) requires reversal of credit attributable to inputs lying in stock and to inputs contained in finished excisable goods lying in stock on the date the exemption option is exercised. The disputed goods here were waste and scrap arising during manufacture of metal containers. Waste and scrap cannot be treated as a final product for the purpose of the rule, and the transitional reversal provision does not extend to inputs contained in such waste and scrap. The cited contrary view was held inapplicable on the facts.

Conclusion: The demand for reversal of Modvat credit was not sustainable. The issue is decided in favour of the assessee.

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