Modvat credit may discharge earlier excise duty short-payment, with debit in the credit account treated as valid payment.

Modvat credit could be used to discharge short-paid excise duty for an earlier period, because Rule 57A allows specified duty credit to be utilised for payment of duty on final products without limiting use to the period in which the liability arose. Payment through debit in the Modvat account was treated as legally equivalent to payment through the PLA, so insistence on cash payment had no legal basis. The availability of credit when the short levy was made good was therefore sufficient, absent an express restriction in the rule.

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Issues: Whether duty short-paid for an earlier period could be discharged by debit in the Modvat account instead of cash payment, and whether denial of such adjustment was legally sustainable.

Analysis: Rule 57A permits credit of specified duty to be utilised for payment of excise duty on final products, and the rule does not confine utilisation to the period in which the duty liability arose. Discharge of duty liability by adjustment in the PLA or by debit in the Modvat account both satisfy the obligation to pay duty. The fact that the credit was available when the short levy was made good was held to be immaterial.

Conclusion: The insistence on cash payment was without legal basis, and the adjustment through the Modvat account was permissible.

Ratio Decidendi: Where the governing Modvat rule allows utilisation of credit for payment of excise duty, the duty liability may be discharged by debit in the credit account even if the liability related to an earlier period, unless the rule expressly restricts such utilisation.

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