Modvat credit on duty-paid exempt goods cannot be denied when payment was made under departmental permission and not withdrawn.

Modvat credit was held admissible where duty on soda ash, otherwise exempt under Notification 158/68, had been paid after the manufacturer obtained departmental permission and filed the requisite Rule 57A declaration. The department could not treat the amount as a mere deposit and deny credit after having accepted the payment basis, because the permission continued to bind it until withdrawn or set aside according to law. The use of the words "prima facie" did not, by itself, justify reversal of credit in the absence of any lawful cancellation of the permission.

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Issues: Whether Modvat credit could be denied on the duty paid on soda ash used for purification of brine, when such payment was made pursuant to the department's permission despite exemption under Notification 158/68.

Analysis: Soda ash used for purification of brine was exempt from duty under Notification 158/68, but the manufacturer had approached the Assistant Collector and obtained permission to pay duty, subject to filing the required declaration under Rule 57A. The duty was then paid and taken as Modvat credit. The department later sought to deny credit on the footing that the amount paid was only a deposit and not excise duty. The controlling principle was that where the department had accepted the assessee's position and permitted payment, credit already taken and utilised could not be withdrawn unless that permission or the underlying position had first been set aside according to law. The letter of permission continued to bind the department until withdrawn, and the mere use of the words "prima facie" did not justify denial of credit in the absence of any subsequent reversal.

Conclusion: Modvat credit was admissible, and denial of credit was not justified.

Ratio Decidendi: Where the department permits payment of duty on goods otherwise exempt and the assessee pays duty in reliance on that permission, credit of such duty cannot be denied until the permission or the basis for it is withdrawn or set aside in accordance with law.

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