Modvat credit without one-to-one input linkage cannot be denied where valid credit is used against excisable final products.

Modvat credit taken on inputs could not be denied merely because there was no one-to-one correlation between the inputs and a particular cleared final product. Where the assessee maintained a consolidated Modvat credit account, validly earned credit was available for discharge of duty on excisable final products and was not confined to item-by-item linkage. On that basis, credit on electrical motors and cables could not be treated as wrongly utilised simply because those inputs were not used in the specific loaders under dispute. The demand and penalty were therefore held unsustainable and were set aside in favour of the assessee.

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Issues: Whether Modvat credit taken on inputs used in one set of final products could be denied or treated as wrongly utilised merely because there was no one-to-one correlation with a particular cleared final product.

Analysis: The appellant maintained a consolidated Modvat credit account for all inputs. On that basis, the credit earned on inputs could not be segregated and linked to a particular final product for the purpose of alleging misuse. The absence of one-to-one correlation between specific inputs and a specific duty payment meant that credit taken on electrical motors and cables could not be said to have been utilised for the loaders in which those inputs were not used. The principle applied was that Modvat credit, once validly earned, was available for discharge of duty on excisable final products and was not confined to a particular item-by-item linkage.

Conclusion: The demand and penalty were unsustainable and were set aside, in favour of the assessee.

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