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Issues involved: Conflict of decisions between High Courts regarding the reversal of credit availed under the Modvat Scheme when final products become exempt from duty.
Summary: The appeal was referred to the Larger Bench due to conflicting decisions of Allahabad High Court and Kerala High Court regarding the reversal of credit under the Modvat Scheme. The main issue was whether credit availed and utilized under the Modvat Scheme during the period when final products were dutiable should be reversed when the final product is subsequently exempted from duty. The respondent had reversed the credit amount but later claimed a refund, which was rejected by the adjudicating authority. The Commissioner (Appeals) allowed the refund, citing the absence of a provision in law to recover the credit of duty on inputs already utilized for dutiable products. The Allahabad High Court held that Modvat credit is provisional until final products are cleared, while the Kerala High Court ruled that no reversal is needed if final products were not exempted at the time of availing credit. The Supreme Court clarified that once credit is validly taken, it is indefeasible and can be used without limitation in time unless the manufacturer chooses not to use the raw material in the excisable product. The Departmental Representative argued for the reversal of credit even if the final product was exempted, citing various Supreme Court decisions. However, the Tribunal held that these decisions did not address the specific issue at hand. Given the clarity provided by the Supreme Court in a previous case, the Tribunal dismissed the appeal without the need for a larger bench, despite a previous contrary view by a five-member bench. The decision was based on the principle that validly taken credit is indefeasible unless utilized illegally or irregularly.
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