Modvat credit and limitation: one-to-one correlation is not mandatory, and extended time needs proof of wilful suppression.

Modvat credit cannot be denied merely because the assessee does not maintain a one-to-one correlation between inputs and final products where the rule allows credit for inputs used in or in relation to manufacture of the intended final product. The requirement is satisfied absent proof that the credit was actually diverted to a different product. The extended limitation period also cannot be invoked unless wilful suppression or intent to evade duty is established; disclosure of the relevant details and departmental scrutiny of returns support the absence of such suppression.

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Issues: (i) Whether Modvat credit could be denied on the ground that the assessee did not maintain one-to-one co-relation between inputs and final products, and whether the credit was confined only to the particular final product for which the inputs were intended. (ii) Whether the demand was barred by limitation on the ground that wilful suppression or intent to evade duty was not established.

Issue (i): Whether Modvat credit could be denied on the ground that the assessee did not maintain one-to-one co-relation between inputs and final products, and whether the credit was confined only to the particular final product for which the inputs were intended.

Analysis: The relevant rule permitted input credit to be used in or in relation to manufacture of the final product for which the inputs were brought into the factory. The decision treated the expression indicating intended use as negativing the insistence on one-to-one co-relation. It was also found that the adjudicating authority had rejected the assessee's reliance on the cited precedent without explaining why that authority was inapplicable or demonstrating any actual misuse of credit on a different final product.

Conclusion: The insistence on one-to-one co-relation was held to be untenable, and the Modvat credit could not be denied on that ground.

Issue (ii): Whether the demand was barred by limitation on the ground that wilful suppression or intent to evade duty was not established.

Analysis: The record showed that the assessee had furnished the required details, and the departmental assessment of RT-12 returns supported the absence of deliberate concealment. On that basis, the finding of wilful suppression necessary to invoke the extended limitation provision was not made out.

Conclusion: The demand was held to be hit by limitation and the extended period was not available.

Final Conclusion: The order confirming demand and penalty was unsustainable in both on merits and on limitation, and the assessee succeeded in the appeal.

Ratio Decidendi: Under the Modvat scheme, credit cannot be denied merely for want of one-to-one correlation between inputs and final products where the rule permits use of inputs intended for manufacture, and the extended limitation period cannot be invoked absent wilful suppression or intent to evade duty.

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