Modvat credit limitation must yield where transit seizure prevents receipt of inputs in factory within prescribed time.
Rule 57G required Modvat credit to be taken only on inputs actually received in the factory under prescribed documents, and sub-rule (5) prescribed a six-month period. Where goods were seized in transit and, without fault of the assessee, could not be received in the factory within that period, the limitation was not applied rigidly. The period was read harmoniously with the receipt requirement, so credit taken after release of the goods was treated as valid and denial of Modvat credit was unsustainable.
Issues: Whether Modvat credit could be denied on the ground that it was taken after six months from the date of invoice, where the goods were seized in transit and were received in the factory only after their release.
Analysis: Rule 57G required the manufacturer to take credit only in relation to inputs received in the factory under the prescribed documents, and sub-rule (5) prescribed a six-month period for taking such credit. However, where the goods were seized while in transit and, for no fault of the assessee, could not be received in the factory within that period, the statutory limitation could not be applied in a rigid manner. The receipt of goods in the factory became possible only after release by the department, and the assessee took credit after that event. The limitation provision was therefore construed harmoniously with the receipt requirement under the rule.
Conclusion: The denial of Modvat credit was unsustainable and the assessee was entitled to the credit.
Final Conclusion: The appeal succeeded and the orders disallowing Modvat credit were set aside with consequential relief to the appellant.
Ratio Decidendi: The six-month limitation for taking Modvat credit under Rule 57G(5) cannot be enforced where seizure of the goods in transit prevented their receipt in the factory within the prescribed period, since the right to take credit depends on actual receipt of inputs under the prescribed document.
TaxTMI 
AI Drafter ✕
TaxTMI 
