Modvat credit reversal under Rule 57H(7) is prima facie inapplicable on shift to the Compounded Levy Scheme.

Rule 57H(7) applies only where an assessee moves from the Modvat scheme to an exemption-based scheme and must reverse credit on inputs in stock at the date of switch-over. A shift from Modvat to the Compounded Levy Scheme under Section 3A is not such an exemption scheme, so reversal under Rule 57H(7) was prima facie not attracted. On that basis, the demand based on Rule 57H(7) was treated as unsustainable at the interim stage, and the assessee was found to have a strong prima facie case for waiver of pre-deposit and stay of recovery.

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Issues: Whether Modvat credit taken on inputs before the shift to the Compounded Levy Scheme was liable to be reversed under Rule 57H(7) read with Rule 57F(17) of the Central Excise Rules, and whether the assessee was entitled to waiver of pre-deposit and stay of recovery.

Analysis: Rule 57H(7) applies where an assessee shifts from the Modvat scheme to a scheme covered by an exemption notification and is required to reverse credit on inputs lying in stock on the date of such switch-over. The present case involved a shift from Modvat to the Compounded Levy Scheme under Section 3A of the Central Excise Act, which is not an exemption scheme. On that footing, the demand raised by invoking Rule 57H(7) was prima facie unsustainable, and the assessee established a strong prima facie case for interim relief.

Conclusion: Rule 57H(7) was held prima facie inapplicable, and the assessee was granted unconditional waiver of pre-deposit and stay of recovery.

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