Accrued Modvat credit survives a non-retrospective amendment, while bona fide credit claims may defeat penalty.

Modvat credit of Special Excise Duty accrued when duty was paid on the input, so an amending notification could not retrospectively extinguish credit already earned on the 28-2-2000 invoice; that credit was therefore admissible. Credit on the 12-3-2000 invoice was not admissible because the duty was paid after the amendment had withdrawn credit on Chapter 21 goods. Penalty was also unwarranted, as the credits were taken on a bona fide understanding of the notification and without the requisite guilty intent. The decision thus preserved pre-amendment credit, upheld denial of post-amendment credit, and deleted the penalty.

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Issues: (i) Whether Modvat credit of Special Excise Duty was admissible on inputs cleared under invoice dated 28-2-2000 and on inputs cleared under invoice dated 12-3-2000 after the amendment to Notification No. 21/99-C.E. (N.T.). (ii) Whether penalty was warranted on the facts of the case.

Issue (i): Whether Modvat credit of Special Excise Duty was admissible on inputs cleared under invoice dated 28-2-2000 and on inputs cleared under invoice dated 12-3-2000 after the amendment to Notification No. 21/99-C.E. (N.T.).

Analysis: The right to take credit accrued when the input was cleared on payment of duty and, in the case of the invoice dated 28-2-2000, the duty had already been paid before the amendment came into force. The amending notification did not operate retrospectively, so the accrued credit right was preserved. The Board circular relied upon to deny credit was also quashed by the Karnataka High Court. In contrast, the invoice dated 12-3-2000 covered duty paid after the amendment, when credit on Chapter 21 goods was no longer available, and no vested right could be claimed.

Conclusion: Credit on the invoice dated 28-2-2000 was admissible and the denial of that credit was unsustainable, but credit on the invoice dated 12-3-2000 was not admissible.

Issue (ii): Whether penalty was warranted on the facts of the case.

Analysis: The credits were taken on the basis of the appellants' understanding of the notification. In these circumstances, the requisite guilty intent for penalty was absent.

Conclusion: The penalty was not justified and was set aside.

Final Conclusion: The dispute was resolved in part for the assessee by restoring credit on the pre-amendment invoice and by deleting the penalty, while sustaining the disallowance of credit on the post-amendment invoice.

Ratio Decidendi: A credit right accrues on the date duty is paid on the input, and in the absence of retrospective operation an amending notification cannot take away that accrued right; penalty is unwarranted where credit is taken under a bona fide interpretation of the notification.

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