Deemed Modvat credit cannot be denied for unpaid interest alone when duty on inputs has already been paid.

Deemed Modvat credit under Notification No. 58/97-C.E. could not be denied merely because the supplier had not paid interest on delayed central excise duty, where duty on the inputs itself had been paid. The Tribunal treated non-payment of interest as distinct from non-payment of the appropriate duty and followed its earlier view that an outstanding interest liability does not convert a duty-paid input into one on which duty remains unpaid. On that basis, denial of the credit was unsustainable and the assessee was entitled to the deemed Modvat credit.

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Issues: Whether deemed Modvat credit could be denied on the ground that the supplier of inputs had not paid interest on delayed payment of Central Excise duty, though the duty on the inputs had been paid.

Analysis: The credit was claimed under Notification No. 58/97-C.E. dated 30.08.1997. The decisive question was whether non-payment of interest by the supplier could be treated as non-payment of the appropriate duty on the inputs. The Tribunal followed its earlier decision holding that where duty on the inputs had been paid and only interest remained outstanding, the default in payment of interest did not amount to non-payment of duty so as to deny credit.

Conclusion: The denial of deemed Modvat credit was not sustainable, and the assessee was entitled to the credit.

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