Per Justice K.K. Usha :

This appeal is placed before the Larger Bench by a reference under Order No. CI/2077-79/WZB/2001 dated 1.8.2001 by the West Region Bench of the Tribunal [reported in 2001 (46) RLT 710 CEGAT-Mum.)].

2. The reference was necessitated in view of conflicting decisions of two High courts, namely Super Cassettes Industries Vs. Union of India 1997 (94) ELT 302 of Allahabad High Court and Collector of Central Excise Customs, Cochin Vs. Premier Tyres Ltd. 2001 (46) RLT 617 (Ker.)=2001 (130) ELT 417 of Kerala High Court. Since the decision of the Kerala High Court was rendered following a decision of the Supreme Court in Collector of Central Excise Pune Vs. Dai-ichi Karkaria Ltd. 1999 (33) RLT 899 (SC)=1999 (112) ELT 353 (SC), it was felt that the matter need not go before 7 Member Bench in spite of the decision of the Larger Bench of the Tribunal in Khanbhai Esoofbhai Vs. Collector of Central Excise, Calcutta 1999 (30) RLT 519 (CEGAT-.LB)= RLT (L.B.-CEGAT) - 1193=1999 (107) ELT 557 (Tribunal -LB).

3. The issue that arises for consideration is whether credit availed and utilised under the Modvat Scheme during the period when the final products were dutiable is required to be reversed when subsequently the final product is exempted from duty. Facts in the present case are not in dispute. The respondent is manufacturing both Kerosene Wick Stove as well as parts of Kerosene Wick Stove. When Kerosene Wick stove were wholly exempted from duty under Notification dated 1.3.94 the parts which were also end products of the respondent were not granted the exemption. Subsequently, parts captively consumed were exempted under Notification No. 10/96-CE dated 23.7.96. The respondent had obtained Central Excise licence since parts of the stove were not exempted prior to 23.7.96. The respondent worked out the stock of inputs lying with them aggregating to Rs. 12,17,473/- as on 22/23.7.96 and accordingly reversed an amount of Rs. 2,01,261/- vide RG-23A Part II entry No. 421 dated 9.8.96 and an amount of Rs. 10,16,212/- vide Personal Ledger Account entry No. 373 dated 9.8.96. Later on, realising that they were not required to pay/reverse the credit of the inputs, already utilised by them before 23.7.96 they filed a claim for refund of Rs. 10,16,212/- before the competent authority. This claim was rejected by the adjudicating authority holding that availing of credit in anticipation of the use of the inputs in the manufacture of dutiable products become irregular once the finished products become exempt from duty. The finished products loosing their dutiable character would have its effect on the credit of duty taken and utilised already. If such credit had been taken and also utilised already, then such utilisation was irregular and had to be recovered.

4. On appeal by the assessee, Commissioner (Appeals) took a different view. According to him, the assessee is entitled to claim refund in respect of the credit which they had already utilised while clearing their final product at a time when it was dutiable. He took the view that there is no provision in law to recover the credit of duty on inputs which has been availed and utilised at the material time in the clearance of final product. He placed reliance on the decision of the Supreme Court in Eicher Motors Ltd. Vs. Union of India 1999 (30) RLT 829 (SC)=1999 (106) ELT 3(SC) and certain other decisions. We find no reference in this order to the decision of the Allahabad High Court in Super Cassettes Industries Ltd. or to the decision of the Larger Bench of this Tribunal in Khanbhai Esoofbhai. It is true that the decision of the Kerala High Court in Premier Tyres Ltd. case was after the appellate order but the decision of the Supreme Court in Dai-ichi Karkaria Ltd. which was rendered as early as on 11.8.99 is not seen placed before the appellate authority.

5. In Super Cassettes Industries Ltd. a decision rendered by a Single Judge of the Allahabad High Court it was held that Rule