Modvat credit cannot be denied merely because later debit notes adjust the supplier's price after valid duty-paid inputs were received.

Modvat credit on inputs could not be reduced or denied merely because the buyer later issued debit notes to the supplier after finding that the supplier had charged a higher price than the purchase order price. The Tribunal treated the credit as validly taken on the strength of proper documents and held that a later price adjustment between buyer and supplier did not alter the duty already paid on the inputs. On that basis, the denial of Modvat credit was unsustainable and the assessee succeeded.

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Issues: Whether Modvat credit taken on inputs could be reduced or denied merely because the assessee later issued debit notes to the supplier after finding that the supplier had charged a higher price than the purchase order price.

Analysis: The dispute turned on whether the subsequent debit note affected the quantum of duty already paid on the inputs. The Tribunal noted that the credit had been taken on the strength of valid documents and that the duty element paid by the manufacturer of the inputs had not been altered by the later debit note. Following the earlier view that such debit notes do not change the duty already paid on inputs, the Tribunal held that the Modvat credit already taken by the assessee could not be varied merely on account of the price adjustment between buyer and supplier.

Conclusion: The denial of Modvat credit was held unsustainable and the appeal was allowed in favour of the assessee.

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