Modvat credit and cum-duty valuation must be applied in clandestine removal duty disputes, eliminating net liability and penalties.

In a duty demand arising from alleged clandestine removals, duty computation had to account for Modvat credit on duty-paid inputs and the assessable value had to be worked on a cum-duty basis. The Tribunal noted that the evidence of duty-paid receipt of compressors was not properly considered, and applied the principle that credit cannot be denied merely for non-compliance with Modvat procedure. On that basis, the available credit exceeded the duty confirmed, leaving no net duty liability and rendering the demand and connected penalties unsustainable.

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Issues: Whether Modvat credit on duty-paid inputs and cum-duty benefit were available while computing the duty demand arising from clandestine removals, and whether the penalty could survive when the credit exceeded the duty demanded.

Analysis: The duty demand arose from alleged clandestine clearance, but the substantive dispute was confined to the correctness of the duty computation. The appellants produced invoices and other material showing receipt of compressors on payment of duty, which was not properly considered by the lower authorities. The Tribunal applied the principle that once duty is demanded, credit of duty already paid on inputs cannot be denied merely because the Modvat procedure was not followed. It also held that assessable value had to be worked on a cum-duty basis. Since the available Modvat credit exceeded the duty confirmed, there was no net duty liability. In that situation, the reasoning supporting the duty demand and the penalties was unsustainable.

Conclusion: Modvat credit and cum-duty benefit were required to be given, the duty demand was unsustainable, and the penalty could not stand.

Ratio Decidendi: In a duty demand case, credit of duty already paid on inputs cannot be denied solely for non-compliance with Modvat procedure, and the assessable value must be worked on a cum-duty basis.

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