Per A.C.C. Unni:

These are a batch of 18 appeals referred to this Larger Bench for consideration of an important question of law. The question raised relates to continued availability of Modvat Credit under the Central Excise Rules, 1944 and the legality of the assessee's claim to retain the said credit when the final product becomes fully exempt from payment of duty. Or, on the flip side, was it legal and proper for Revenue to seek recovery of Modvat Credit correctly taken and utilised by an assessee on (a) inputs lying in stock and (b) inputs used in manufacture of final products lying in stock when the final products become exempt from duty or when the assessee opts for full exemption under a notification. There were conflicting views expressed by different Benches of this Tribunal on these questions. While some of the decisions supported the view that Rule 57C would require reversal/recovery of credit taken, others have held that the Rules do not provide for any such recovery or demand for reversal of such credit.

2. We had the benefit of hearing Ld. Advocates Shri. J.P Khaitan, who appeared in Appeal No.E/72/92-Cal (M/s Khan Bhai Esoof bhai Vs CCE, Calcutta), Shri Gopal Prasad, Consultant, who appeared in three Appeals No. E/3090/90-NB, E/936/97-NB and E/l272/97-NB (all Appeals filed by M/s Vidya Plywood (P) Ltd Vs. CCE, Kanpur), Shri L.P. Asthana, Advocate, who appeared in Appeal No.E/ 74/94-MAS (M/s J.M. Bottling (P) Ltd Vs CCE), Shri. V. Sridharan and Shri. M.P. Devnath, Advocates, who appeared in AppealNos.E/3080,3081/94-NB, E/l681 to 1683/94-NB, E/2687/94-NB (filed by CCE, Meerut Vs Super Electronics and M/ s Super Electronics Vs CCE, Meerut) and Appeal No.E/1296/96-NB (filed by M/ s Brook Bond Lipton (I) Ltd. Vs CCE, Kanpur). In other Reference matters mentioned above, no one was Present for the assessees when the cases were called.

3. Shri. B.K Gupta, Ld. Jt. C.D.R along with Shri. Sanjeev Srivastava, Ld. JDR, rePresented the Department and made submissions on behalf of Revenue.

4. Shri. J.P. Khaitan, Ld. Counsel, who led the arguments for the assessees submitted that the various Benches of the Tribunal had taken conflicting decisions on the question whether Modvat credit once validly taken under Rule 57A can be disallowed/recovered when the final product had subsequently become non-modvatable by virtue of an exemption notification. In this connection, he referred to the following decisions of the Tribunal, holding in favour of the assessees:

In Delhi Bottling Co. Ltd. Vs. CCE [1997 (96) ELT 608 (T)] the Tribunal had taken the view that reversal of credit taken on inputs for manufacture of final products lying in stock was not warranted where the final product (aerated water) become exempted subsequent to the availment of Modvat credit following the decision in Pearl Drinks (P) Ltd. Vs. CCE [1993 (68) ELT 209] holding that Modvat credit taken in respect of unutilised inputs would not be recoverable, there being no specific provision under modvat rules for recovery of modvat credit. The Tribunal had also noted the Gujarat High Court in decision in Dipak Vegetable Oil Industries Ltd. Vs. Union of India, [1991 (52) ELT 222] wherein it was held that the right to credit accrues as soon as the inputs enter the factory. In CCE Vs.. Boama Manufacturers (P) Ltd. [1996 (82) ELT 562 (T), it was held by the Tribunal that Modvat Credit taken on the inputs lying unutilised need not be reversed where exemption notification is issued during pendency of utilisation of inputs. The Tribunal had, in Vikrant Tyres Vs. CCE, [1988 (38) ELT 301], while dealing with a claim for proforma credit under rule 56A held that final products were not necessarily be duty paid for inputs to be eligible for profoma credit. In another decision relating to claim for proforma credit it was held that credit was not liable to be dis-allowed if finished goods become exempted CCE Vs. Wipro Information Technology Ltd, [1988 (33) ELT 172] in Tripty Drinks (P)