Modvat credit restoration after demand is dropped does not require a refund application under Section 11B.

Where Modvat credit was reversed only because of a Revenue demand that was later dropped, the debit entries did not survive as a separate adjustment. Restoration of the credit was treated as a consequential correction flowing from the dropping of that demand, not as an independent refund claim. Accordingly, the assessee was entitled to restore the credit without filing an application under Section 11B, and the appellate order denying such restoration was set aside.

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Issues: Whether, after the demand that had led to reversal of Modvat credit was dropped, the assessee could restore the reversed credit in its account without filing a refund application under Section 11B.

Analysis: The reversed amount formed part of the very demand raised by the Revenue. Once that demand was dropped, the debit entries made in respect of that amount no longer survived as a necessary adjustment. The credit restoration was therefore only a correction flowing from the dropping of the demand, and not an independent claim for refund requiring scrutiny under Section 11B.

Conclusion: The restoration of Modvat credit was permissible without a refund application, and the assessee succeeded on this issue.

Final Conclusion: The order of the appellate authority was set aside and the assessee's restoration of credit was upheld with consequential relief.

Ratio Decidendi: Where a debit made from Modvat credit is integrally linked to a demand that is later dropped, restoration of the credit is a consequential correction and does not require a refund application under Section 11B.

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