Rule 11 – Transitional provisions :

(1) Reversal of credit by manufacturer opting for SSI exemption: Sub-rule (2) specifically provides that whenever the manufacturer opts out of CENVAT and opts for exemption based on value of clearances, he shall pay the amount equivalent to the CENVAT credit allowed to him in respect of the inputs lying in stock or in process or contained in final products lying in stock and the balance, if any, would lapse.

(2) Reversal of credit by manufacturer in case of absolute exemption or when he opts for exemption granted under section 5A: Sub-rule (3) provides that a manufacturer shall be required to pay an amount equivalent to the CENVAT credit in respect of inputs received for use in the manufacture of the final product which is lying in stock or in process or is contained in the final product lying in stock, if,-

(i) he opts for exemption from whole of the excise duty leviable on the said final product under a notification issued under section 5A of the Central Excise Act; or

(ii) the said final product has been exempted absolutely under section 5A of the Act.

If after deducting the said amount from the balance of CENVAT credit (if any lying in his credit) there still remains a balance, it shall lapse. Such balance shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.

(3) Reversal of credit by output service provider opting for exemption: Similar is the situation in respect of cases wherein taxable services become exempted. Sub-rule (4) provides that a output service provider shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for providing the said service and is lying in stock or is contained in the taxable service pending to be provided, when he opts for exemption from payment of whole of the service tax leviable on such taxable service.

After deducting the said amount from the balance of CENVAT credit (if any lying in his credit) if there still remains a balance, it shall lapse. Such balance shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export or for payment of service tax on any other output service, whether provided in India or exported.

It should be noted that in this case reversal of credit of input services is not required.