Modvat credit on common inputs cannot be denied for a technical declaration defect where credit remained usable

Modvat credit on common inputs was discussed in the context of whether a credit claim could be denied merely because motor vehicle parts and accessories were not shown as final products in one declaration. The text states that the declaration defect was treated as technical, since the inputs were common to declared and undeclared outputs and the credit was available for utilisation against the declared final product, motor vehicles. It also notes the settled principle that where the issue is only adjustment between the RG-23A account and PLA, the credit earned is not extinguished. On that basis, reversal of credit, the related duty demand and penalties were stated to be unsustainable.

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Issues: Whether Modvat credit taken on common inputs could be denied merely because motor vehicle parts and accessories were not declared as final products in one of the declarations, and whether the related duty demand and penalties could stand.

Analysis: The declaration dispute was treated as subordinate to the substantive position that the inputs were common to declared and undeclared outputs and that the credit had in any event been available for utilisation against the declared final product, namely motor vehicles. The majority applied the settled Modvat principle that where denial of utilisation against one output would only require adjustment between the RG-23A account and PLA without extinguishing the credit, the objection remained technical and did not justify disallowance of credit already earned on common inputs. On that footing, the demand for reversal of credit, the consequential duty demand on clearances of parts and accessories, and the penalties were held unsustainable.

Conclusion: The denial of Modvat credit was held to be invalid, and the connected duty and penalty demands were set aside in favour of the assessee.

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