Statutory abatement and Modvat credit must be allowed on recomputed garment duty, subject to documentary verification.

Duty assessed on the retail sale price of garments had to be recomputed after allowing the statutory 40% abatement available under the notification, because demand could not be sustained on a gross retail price basis without that deduction. Modvat credit on inputs and capital goods remained admissible even after the duty demand was upheld on denial of exemption, subject to production and verification of duty-paying documents to the satisfaction of the adjudicating authority. The rectification application was allowed, with recomputation of duty and consequential credit relief in favour of the assessee.

---

---

Issues: (i) whether the duty demand was required to be recomputed after allowing the statutory abatement from the retail sale price; and (ii) whether Modvat credit on inputs and capital goods was admissible when the demand had been upheld by denying the benefit of the exemption notification.

Issue (i): whether the duty demand was required to be recomputed after allowing the statutory abatement from the retail sale price.

Analysis: The demand had been worked out on the retail sale price of the garments. The allowed abatement of 40% from the retail price had not been taken into account, and duty cannot be demanded without granting the abatement available under the notification.

Conclusion: The duty had to be recomputed after allowing the statutory abatement, in favour of the assessee.

Issue (ii): whether Modvat credit on inputs and capital goods was admissible when the demand had been upheld by denying the benefit of the exemption notification.

Analysis: Once the duty demand against the applicants had been upheld, they remained entitled to Modvat credit on the duty paid on inputs and capital goods, subject to production of duty-paying documents to the satisfaction of the Adjudicating Authority.

Conclusion: Modvat credit was admissible subject to verification of duty-paying documents, in favour of the assessee.

Final Conclusion: The rectification application was allowed and the duty was directed to be recomputed after granting abatement, with consequential allowance of Modvat credit subject to proof of duty payment.

Ratio Decidendi: Duty assessed on retail sale price must reflect the statutory abatement where available, and credit of duty paid on eligible inputs or capital goods cannot be denied merely because the demand has been confirmed, subject to documentary verification.

---