Deemed Modvat credit and refund limitation turned on CT2 clearances and the commencement date of the compounded levy scheme.

Deemed Modvat credit under Notification No. 29/96-C.E. (N.T.) was held not to be denied merely because clearances were made against CT2 certificates under Chapter X procedure, as such clearances were not treated as exempted clearances attracting Rule 57C. The refund claim was also held to be within limitation because the relevant date for computing limitation was the commencement of the compounded levy scheme, when practical utilisation of the credit first became impossible. On both issues, the claim was accepted and the Revenue challenge failed.

---

---

Issues: (i) whether deemed Modvat credit under Notification No. 29/96-C.E. (N.T.) could be denied on the footing that clearance under Chapter X procedure against CT2 certificate was a clearance without payment of duty attracting Rule 57C of the Central Excise Rules, 1944; and (ii) whether the refund claim was time-barred, with the relevant date for limitation being the date of commencement of the compounded levy scheme under Section 3A of the Central Excise Act, 1944.

Issue (i): Whether deemed Modvat credit could be denied under Rule 57C on clearances made against CT2 certificate under Chapter X procedure.

Analysis: The Notification under Rule 57A permitted deemed credit for processed fabrics. Clearance against CT2 certificate under Chapter X was treated as clearance not falling in the category of clearance without payment of duty. On that basis, the bar under Rule 57C, which applies to inputs used in exempted goods, was held inapplicable to the claimant's case.

Conclusion: The denial of deemed Modvat credit on the ground of Rule 57C was not sustainable and the finding was in favour of the assessee.

Issue (ii): Whether the refund claim was barred by limitation.

Analysis: The relevant date was held to be the date on which the compounded levy scheme became operative, since only then did accumulation and utilisation of the deemed credit become impracticable for payment of duty. The period before that date did not require a cash refund claim, and therefore the claim could not be treated as time-barred on the reasoning adopted by the adjudicating authority.

Conclusion: The refund claim was held to be within limitation and this issue was decided in favour of the assessee.

Final Conclusion: The impugned order setting aside rejection of the refund claim was affirmed and the Revenue challenge failed.

Ratio Decidendi: Where deemed credit is available under the governing notification and clearance against CT2 certificate does not amount to exempted clearance, the bar on credit is not attracted; limitation for refund must be computed from the date when the statutory scheme first makes utilisation of the credit in practice.

---