Modvat credit dispute: credit taken after duty payment under departmental insistence was not treated as a fresh illegality.

Modvat credit taken after duty had been paid on cable jointing kits under departmental insistence was not treated as a fresh illegality where the goods had already been held non-excisable and the earlier Tribunal direction required restoration of the duty debit by reversal of the RG 23A Part II entry. The commentary notes that any challenge to inadmissible credit could be pursued separately in accordance with law, and that the assessee's conduct remained consistent with the department's stand, the High Court ruling and the prior Tribunal order. On those facts, demand, interest and penalty were considered unsustainable, and invocation of Rule 57C after nearly eight years was viewed as untenable.

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Issues: Whether the assessee's taking and utilisation of Modvat credit after being compelled to pay duty on cable jointing kits, and the consequent demand, interest and penalty proceedings, were legally sustainable and within limitation.

Analysis: The goods had already been held non-excisable, and the assessee had paid duty only because the department insisted on such payment. The earlier Tribunal direction recognised that duty debited in RG 23A Part II was to be restored by reversal of entry, and that any objection to inadmissible credit could be pursued separately in accordance with law. On the facts, the credit was taken only to implement that position and the assessee's conduct was consistent with the departmental stand, the High Court's ruling and the Tribunal's earlier order. In such circumstances, the taking of credit could not be treated as a fresh illegality attracting demand or penalty, and invocation of Rule 57C after nearly eight years was also held to be untenable.

Conclusion: The demand, interest and penalty were not sustainable, and the assessee succeeded on the issue.

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