V.P. Gulati, Member (T)

1. This appeal is filed by the Collector of Central Excise, Guntur against the order of Collector of Customs Central Excise (Appeals), Madras. Brief facts as set out in the impugned order are as under:

"The brief facts of this appeal are that appellants who are manufacturers of Aerated Waters were availing of Modvat provision was withdrawn for the appellants vide Notification No. 203/87 dated 9-9-1987 with effect from 1-10-1987. Appellants state that there are some inputs in stock for which they had taken credit of duty and utilised the same in payment of duty on final products. Similarly they have some inputs which had already been converted into final products but the said final products were not cleared within the factory, upon payment of duty. The Asst. Collector in the impugned order has held that since the parties are not eligible for the above credit, the same is disallowed".

2. The learned Collector (Appeals) has relied upon the judgment of the Tribunal while allowing this appeal in the case of Collector of Central Excise, Bangalore v. Wipro Information Technology, reported in MANU/CC/0035/1987 : 1988 (33) E.L.T. 172. He has taken note of the findings of the Tribunal in that case as under:

"allowing of credit would have to be with reference to the facts as prevailing at the time, inputs are taken into the factory. If there was no error or irregularity in the allowing of the credit at that point of time, it does not appear to us that the credit becomes liable to be disallowed subsequently because the finished goods are subsequently exempted from duty".

Following the ratio of the decision of the Tribunal, as above, the Collector (Appeals) allowed the Respondents' plea holding that since credit was correctly taken at the time inputs were received, credit is not required to be reversed after the MODVAT Facility in case of the Respondents' product was withdrawn.

3. The appellant-Collector has urged the following grounds in his appeal:

"As per Board's F. No. 267/64/88-CX. 8, dt. 10-6-1988 communicated in Guntur Collector's Trade Notice No. 154/88-C.E., dated 7-7-1988 (copy of the order enclosed), the Board has observed that under Rule 57F(1), Modvat credit on inputs can either be utilized for payment of duty on the final product for which such inputs have been brought into the factory or for payment of duty on inputs cleared as such for home consumption or export. Therefore, where the credit on inputs has already been utilised by a manufacturer for payment of duty on aerated water prior to 1-10-1987, without utilizing the said inputs duty will have to be collected on such inputs since the final products i.e. Aerated water" was no longer covered under MODVAT Scheme. It was also decided that the duty on unutilised inputs lying in stock as on 1-10-1987 should be recovered either through a debit to credit balance if any lying in RG 23A account or through a debit to PLA. As per the Board's letter action taken in disallowing Modvat Credit is in order".

4. The learned SDR reiterated the grounds of appeal.

5. The learned Consultant for the Respondents pleaded that in similar cases the Tribunal has upheld the order of the Collector (Appeals) where credit already taken either became exempted or came to be deleted from the list of eligible items under Rule 57A of the Modvat Rules.

6. We observe that MODVAT Credit facilities were introduced with a view to reduce the cascading effect of duty in case of certain specified finished products. Conditions precedent for taking input credit are that both inputs and the finished products at the time inputs are received should be specified in the Notification issued under Rule 57A and the assessee should have filed declaration for taking the input credit. It is not in dispute that when the Respondents received the inputs both the conditions were satisfied. However, what transpired in this case is that after input credit had been taken after satisfying the conditions as set out