Modvat credit cannot be denied when tariff duty applies after exemption under a concessional notification is refused.

Denial of exemption under Notification No. 38/97-C.E. for failure to file the required declaration meant the finished goods were assessable at the tariff rate. On that basis, the separate denial of Modvat credit was unsustainable, because once duty is payable at the tariff rate, credit cannot be refused merely for non-compliance with the declaration condition attached to the exemption notification. The CESTAT therefore set aside the denial of Modvat credit and accepted the assessee's contention.

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Issues: Whether denial of the benefit of Notification No. 38/97-C.E. for want of declaration also justified denial of Modvat credit, when duty on the finished goods was payable at the tariff rate.

Analysis: The assessee was held not entitled to the benefit of Notification No. 38/97-C.E. because the required declaration had not been filed. On that basis, the finished goods became liable to duty at the tariff rate. Once the exemption under the notification was denied and tariff duty became payable, the separate denial of Modvat credit was found unsustainable.

Conclusion: Denial of Modvat credit was set aside and the issue was decided in favour of the assessee.

Ratio Decidendi: Where exemption under a concessional notification is refused and the goods are assessed to duty at the tariff rate, Modvat credit cannot be denied merely because the assessee failed to satisfy the declaration requirement for that notification.

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