Reversal of Modvat credit is required when exempt or non-dutiable clearances are made from duty-paid inputs.

Zinc waste and scrap generated from rejected battery cells could not be cleared without duty while Modvat credit on the inputs remained unreversed. The Tribunal applied the settled principle that where final products are removed as exempted or non-dutiable, the credit availed on inputs must be reversed. On that basis, it held that conscious conversion of rejected battery cells into waste and scrap did not permit retention of the credit when the goods were cleared without duty, and the challenge failed.

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Issues: Whether zinc waste and scrap generated from rejected battery cells cleared without payment of duty could be removed without reversal of Modvat credit.

Analysis: The inputs had been taken under Modvat and the rejected battery cells were consciously converted into waste and scrap and cleared without duty while the credit already availed was not reversed. The Tribunal applied the principle that when final products are cleared as exempted or non-dutiable, the credit taken on inputs is required to be reversed, and held the matter to be covered by the settled position requiring reversal of Modvat credit in such circumstances.

Conclusion: The clearance of the zinc waste and scrap without duty and without reversal of Modvat credit was not permissible, and the appeal failed.

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