Modvat credit under compounded levy scheme cannot be denied for alloy steel ingots manufactured outside the notified non-alloy steel regime.

Modvat credit in RG 23A Part II was held usable for duty payment on alloy steel ingots, because the compounded levy restriction under the relevant notification and Rule 57F(17)(c) applied only to notified non-alloy steel ingots and billets within the specified tariff headings. Credit did not lapse for inputs used in manufacturing alloy steel ingots, as those goods were outside the scope of the scheme. The denial of credit and the related penalty were accordingly set aside, and the appeal succeeded.

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Issues: Whether Modvat credit lying in the RG 23A Part II account could be utilized for duty payment on alloy steel ingots when the manufacturer had opted for the compounded levy scheme for non-alloy steel ingots.

Analysis: The relevant notification under section 3A applied only to notified goods of non-alloy steel falling within the specified tariff headings. The restriction in Rule 57F(17)(c) caused the unutilised credit to lapse only in relation to manufacturers of non-alloy steel ingots and billets falling under the specified headings. Alloy steel ingots were outside the scope of the notification and the restrictive sub-rule. The credit used by the appellant related to inputs used for alloy steel ingots, not to inputs used for non-alloy steel ingots.

Conclusion: The Modvat credit was admissible for payment of duty on alloy steel ingots and could not be denied on the ground that the appellant had opted for the compounded levy scheme for non-alloy steel ingots.

Final Conclusion: The denial of credit and the consequent penalty were set aside, and the appeal succeeded.

Ratio Decidendi: A restriction on Modvat credit under the compounded levy scheme applies only to the notified goods and tariff headings to which the scheme is made applicable, and does not bar utilization of credit for non-notified goods manufactured in the same factory.

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