Modvat credit on capital goods fails where removal exceeds permission, while excessive penalty may still be reduced.

Modvat credit on capital goods was treated as unsustainable where the goods were removed from the factory beyond the permitted period or without valid permission, because the conditions for keeping them outside the factory were not complied with and the credit had already been taken before removal. A later claim that the goods were returned was not accepted, as that issue was outside the scope of the appeal. On the facts, the duty demand remained sustainable. The penalty, however, was found excessive on the available record and was reduced.

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Issues: Whether Modvat credit on capital goods was liable to be denied and duty confirmed when the goods were removed from the factory beyond the permitted period or without valid permission, and whether the penalty deserved reduction.

Analysis: Permission for removal of the capital goods was initially granted and extended up to a specified date, but no further extension was validly granted thereafter. The goods were not brought back to the factory after expiry of the permitted period, and some goods were removed to another premises without authority. Since the Modvat credit had been taken before removal and the conditions for keeping the goods outside the factory were not complied with, the duty demand was sustainable. The plea regarding subsequent return of the goods was not accepted as that question was not the subject matter of the appeal. On the facts, however, the penalty was considered excessive and warranted reduction.

Conclusion: Denial of Modvat credit and confirmation of duty were upheld, while the penalty was reduced to Rs. 1 lakh.

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