Modvat credit on capital goods may be used against additional excise duty absent any express restriction.

Modvat credit taken on capital goods under Rule 57Q could be utilised under Rule 57S(2) for payment of duty on final products, because the provisions did not restrict the credit to any particular form of specified duty or exclude additional excise duty. Notification No. 5/94, which dealt with inputs, did not curtail credit on capital goods. In the absence of an express prohibition, utilisation of such credit against additional excise duty was permissible, and the disallowance was unsustainable.

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Issues: Whether Modvat credit taken on capital goods in respect of basic excise duty could be utilised for payment of additional excise duty on the final products.

Analysis: Rule 57Q of the Central Excise Rules permits credit of specified duty paid on capital goods used in the factory, and Rule 57S(2) permits utilisation of such credit towards payment of duty of excise on the final products. The rules do not impose any restriction on the nature of the specified duty credit or on its use against additional excise duty. Notification No. 5/94 dealt with Modvat credit on inputs and did not restrict credit taken on capital goods. In the absence of any express prohibition, the credit could be used for payment of additional excise duty.

Conclusion: The utilisation of Modvat credit on capital goods for payment of additional excise duty was permissible and the assessee succeeded.

Final Conclusion: The disallowance was unsustainable and the order under challenge was set aside, resulting in allowance of the appeals.

Ratio Decidendi: Where the governing Modvat provisions permit utilisation of credit on capital goods towards duty on final products and there is no express restriction, such credit may be used against additional excise duty as well.

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