Transitional Modvat credit allowed where duty-paid inputs were used after scheme and statutory conditions were satisfied.

Transitional Modvat credit under Rule 57H of the Central Excise Rules, 1944 was held applicable where duty-paid inputs remained in stock and were used after withdrawal of the Pro forma Credit Scheme and replacement by Modvat. The rule was read as governing the shift between schemes, and the authority was required to exercise discretion judicially once the statutory conditions for transitional benefit were met. A prior Tribunal view was followed, and credit was not denied on a narrow reading of the transition provision. The assessee was therefore entitled to Modvat credit on inputs lying and used during the transition period.

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Issues: Whether the appellant was entitled to Modvat credit on inputs lying in stock and used during the transition period after withdrawal of the Pro forma Credit Scheme, and whether Rule 57H of the Central Excise Rules, 1944 applied to permit such credit.

Analysis: The Pro forma Credit Scheme was withdrawn with effect from 20-5-1994 and replaced by Modvat credit. The appellant continued to follow the earlier scheme for a short transition period and sought credit for duty paid inputs used during that period. Rule 57H, which governs transitional credit, was held applicable. The provision was read as requiring the authority to exercise discretion judicially where the conditions for transitional benefit are satisfied. The earlier Tribunal decision relied upon was treated as governing the issue, as the goods manufactured from the relevant inputs had been cleared during the material period and the benefit of credit could not be denied on a narrow reading of the transitional rule.

Conclusion: The appellant was entitled to Modvat credit for the duty paid on inputs lying and used during the period from 20-5-1994 to 2-6-1994.

Ratio Decidendi: Where a transitional credit provision governs the shift from one credit scheme to another, the benefit must be allowed if the statutory conditions are met and the discretion under the rule has to be exercised judicially in favour of the assessee.

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