Modvat credit on capital goods cannot be denied solely for pre-installation entry when credit remains unutilised until use in production.

Modvat credit on capital goods could not be denied merely because it was recorded before installation and use in manufacture. The credit was taken on receipt of the goods but remained unutilised until the goods were installed and put to use in the factory. A later amendment relied on by the Revenue did not justify denial for the earlier period, and the position was treated as revenue neutral because the credit would in any event become admissible once the capital goods were used in production. The credit was therefore available with consequential relief.

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Issues: Whether Modvat credit on capital goods could be denied solely because the credit was entered in the records before installation and use of the goods in manufacture.

Analysis: The dispute turned on the timing of availment of credit under Rule 57Q. The credit had been taken when the capital goods were received, but it remained unutilised until the goods were installed and put to use in the factory. The later amendment relied upon by the Revenue did not justify denial for the earlier period. The situation was revenue neutral because any credit entered earlier would, in any event, become admissible when the capital goods were installed and used in production. The record also showed that the credit was not utilised before the commencement of production.

Conclusion: The denial of credit on the sole ground that the entries were made in 1994 was not justified, and the assessee was entitled to the credit with consequential relief.

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