Modvat credit lapse confined to unutilized balance; duty cannot be demanded on stock inputs or work in progress.

Withdrawal of Modvat benefit under amended Rule 57F(17) was confined to the unutilized credit balance in the assessee's records. The notification did not authorise a duty demand on inputs already lying in stock, or on inputs contained in finished goods and work in progress, because such an expansion was not supported by the text and was inconsistent with the Modvat scheme. Earlier decisions were followed to confirm that only the unutilized credit balance could lapse, and no further duty could be recovered on stock or work-in-progress inputs.

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Issues: Whether, on withdrawal of Modvat benefit and insertion of clauses in Rule 57F(17), duty could be demanded on inputs lying in stock or contained in finished goods and work in progress, or whether only the unutilized credit balance standing in the books could lapse.

Analysis: The amended rule was confined to the credit lying unutilized in the assessee's records. The notification did not create any basis for demanding duty on inputs already lying in stock, or on inputs contained in finished goods and work in progress. The demand notice read words into the notification that were not there, and such an interpretation was inconsistent with the Modvat scheme. The Tribunal also followed earlier decisions holding that, where credit had lapsed in respect of unutilized balance on the relevant date, no further duty could be recovered for stock inputs or inputs in finished goods.

Conclusion: The demand of duty on inputs lying in stock, finished goods, and work in progress was unsustainable; only the unutilized Modvat credit balance could lapse. The appeal succeeded and the impugned order was set aside in favour of the assessee.

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