Modvat credit already earned can be restored after reversal for refund claims when the refund is denied.

Modvat credit validly taken within the prescribed period on receipt of duty-paid inputs was not lost when it was later reversed only to pursue a cash refund. After the refund claim failed, the assessee could restore the same credit because the six-month limit in Rule 57G governed the first availment of credit, not the re-credit of an already accrued entitlement. The credit was treated as a vested and indefeasible right, and the amended time-limit could not defeat that restored entitlement. Re-credit was therefore permissible and the disallowance was not sustainable.

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Issues: Whether Modvat credit, originally taken within time and later reversed to seek cash refund, could be re-credited after six months in the light of Rule 57G.

Analysis: The credit had been initially availed within the prescribed period after receipt of duty-paid inputs. The later reversal was only to pursue cash refund under Rule 57F(4). Once the refund claim failed, the assessee sought to restore the credit already earned. The time limit introduced in the second proviso to Rule 57G applied to the first taking of credit and not to restoration of a credit already validly accrued. The credit was treated as a vested and indefeasible entitlement, and the amendment could not defeat that entitlement.

Conclusion: Re-credit was permissible and the disallowance under Rule 57G was not sustainable.

Ratio Decidendi: A time-limit provision for taking Modvat credit does not extinguish credit already validly earned and initially taken within time, and such credit may be restored when it was reversed only to seek refund and the refund is denied.

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