Modvat credit may discharge a confirmed excise demand, but earlier excess duty payment cannot be set off against later short levy.

Duty paid on an earlier clearance that was not legally due cannot be adjusted against a later short-levy demand; the proper remedy is a refund claim, not set-off against another period's liability. By contrast, where Modvat credit remained available, it could be used to discharge a confirmed central excise demand for earlier clearances. Separate penalties on both a firm and its partner for the same contravention were not justified, so the partner's penalty was deleted. The note thus recognises the demand in principle, allows payment through available credit, and rejects duplicative penalty.

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Issues: (i) Whether duty wrongly paid on earlier clearances could be adjusted against a later demand for short-levied duty; (ii) whether Modvat credit available in the assessee's account could be utilised to satisfy the confirmed demand for earlier clearances; (iii) whether penalty could be imposed both on the firm and on its partner for the same default.

Issue (i): Whether duty wrongly paid on earlier clearances could be adjusted against a later demand for short-levied duty.

Analysis: Duty is required to be paid at the time of clearance. An amount paid on earlier clearances, which was not legally due, cannot be treated as payment towards a subsequent demand arising from later clearances. Such payment may give rise to a claim for refund, but it cannot be used as a set-off against duty short-paid for another period.

Conclusion: The earlier payment of duty could not be adjusted against the subsequent demand.

Issue (ii): Whether Modvat credit available in the assessee's account could be utilised to satisfy the confirmed demand for earlier clearances.

Analysis: The demand was for duty short-levied under Section 11A(1) of the Central Excise Act, 1944. If duty could lawfully be paid from the Modvat account for current clearances, there was no legal basis to deny the same mode of payment for earlier clearances once the demand stood confirmed and credit remained available.

Conclusion: The assessee was entitled to utilise the Modvat credit to discharge the demand.

Issue (iii): Whether penalty could be imposed both on the firm and on its partner for the same default.

Analysis: The same contravention should not attract separate penalties on both the firm and the partner in the circumstances of the case.

Conclusion: The penalty on the partner was set aside.

Final Conclusion: The demand was sustained in principle, but the assessee was permitted to meet it from available Modvat credit, and the separate penalty on the partner was deleted, resulting in a partial relief to the assessee.

Ratio Decidendi: Duty paid on an earlier, unrelated clearance cannot be set off against a later duty demand, but available Modvat credit may be utilised to discharge a confirmed central excise demand, and duplicative penalty on both a firm and its partner for the same default is not justified.

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