Modvat credit on capital goods accrues only on installation, and the governing notification is the one then in force.

Modvat credit on capital goods becomes admissible only on installation or actual use, not on mere importation or receipt in the factory; accordingly, the notification in force on the date the credit first becomes admissible governs entitlement, and the earlier rate could not be claimed. The demand was sustained on merits because the credit was taken after installation when the later notification was already in force. On limitation, the record was incomplete because the RT-12 return-filing evidence was not produced, so the issue could not be finally determined and was remanded to the original authority for fresh examination.

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Issues: (i) Whether credit on capital goods could be taken at the full rate on the basis that the goods were imported and received in the factory before the relevant notification came into force, even though the credit was actually availed only after installation; (ii) whether the demand of around Rs. 92,000 was barred by limitation.

Issue (i): Whether credit on capital goods could be taken at the full rate on the basis that the goods were imported and received in the factory before the relevant notification came into force, even though the credit was actually availed only after installation.

Analysis: Under Rule 57Q(7), credit on capital goods received in the factory cannot be taken before the date of installation. The right to avail Modvat credit therefore accrues only on installation or actual use of the capital goods, not on mere importation or receipt in the factory. Since the credit was taken after installation, when Notification No. 6/97-C.E. (N.T.) was already in force, the applicable notification was the one prevailing on the date the credit became admissible.

Conclusion: The claim to take credit at the earlier rate was rejected and the demand on merits was upheld against the assessee.

Issue (ii): Whether the demand of around Rs. 92,000 was barred by limitation.

Analysis: The plea of limitation depended on the date of filing of the RT-12 return and the consequential computation of the permissible period for issuance of notice. As the relevant return-filing evidence was not produced, the question could not be finally determined on the existing record. The matter was therefore sent back for fresh examination of limitation by the original adjudicating authority.

Conclusion: The limitation issue was remanded for fresh decision.

Final Conclusion: The denial of Modvat credit on merits was sustained, while the limitation question relating to one part of the demand was left for fresh adjudication by the original authority.

Ratio Decidendi: Credit on capital goods becomes admissible only when the capital goods are installed or put to use, and the notification in force on that date governs the entitlement.

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