Notional stock segregation cannot override actual Modvat credit utilisation when inputs are not capable of artificial FIFO allocation.

Notional stock segregation for Modvat adjustment was rejected where inputs had already been reflected in the credit account and the facts did not justify a first-come-first-out allocation. The Tribunal held that pre-1-4-2000 consumption could not be artificially attributed to the non-creditable consignment merely to leave the credited consignment available for lapse on opting out of the scheme. As the disputed consumption had already been accounted for through availed credit, the Revenue could not insist on a deemed adjustment against the non-creditable inputs. The impugned order was set aside and the assessee was granted consequential relief.

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Issues: Whether the 1,500 litres of inputs consumed before 1-4-2000 were to be treated as having been consumed out of the non-creditable 2,400-litre consignment, so as to leave the credited 3,000-litre consignment available for lapse on opting out of the Modvat scheme.

Analysis: The authorities applied a first-come-first-out approach and treated the pre-1-4-2000 consumption as arising from the consignment on which Modvat credit had not been taken. The Tribunal held that such segregation was not justified on the facts, because the inputs were not capable of being so artificially separated for the purpose of credit utilisation. Once Modvat credit had been availed in the account and used up to 1-4-2000, the Revenue could not insist that the consumption must be notionally adjusted against the non-creditable consignment.

Conclusion: The disputed consumption could not be attributed to the non-creditable inputs in the manner adopted below, and the assessee was entitled to relief.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Notional stock segregation for Modvat adjustment cannot be imposed where the use of inputs has already been reflected in the credit account and the facts do not justify a first-come-first-out allocation.

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