Modvat credit on removed-as-such inputs: full credit allowed where the 95% restriction was already applied earlier.

After the amendment limiting Modvat credit on direct receipt of inputs to 95%, the same restriction was not to be applied again when those inputs were removed as such under Rule 57F(2) and Rule 57F(3). The scheme allowed duty to be paid equal to the credit originally availed, and the amended notification did not require a second 95% reduction on the inter-unit transfer. Accordingly, the recipient manufacturer was entitled to full credit equivalent to the credit reversed by the supplier, not 95% of that amount.

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Issues: Whether, after the amendment restricting Modvat credit on the input to 95%, a recipient manufacturer taking credit on inputs removed as such under Rule 57F(2) and Rule 57F(3) was entitled to full credit equal to the credit reversed by the supplier, or only 95% of that reversed credit.

Analysis: The amended notification restricted the credit available to a manufacturer receiving duty-paid input directly from the input manufacturer to 95% of the duty paid on that input. The dispute arose on a further transfer of the same input after reversal of credit. The relevant rules permitted inputs to be removed as such on payment of duty equal to the credit originally availed, and the amended notification did not indicate that the 95% restriction was to be applied again at the stage of such inter-unit transfer. The scheme also did not contemplate successive restriction on the same input in the absence of any value addition or cascading concern.

Conclusion: The recipient of the input removed as such under Rule 57F(2) and Rule 57F(3) was entitled to full credit equivalent to the credit reversed by the supplier, and not to 95% of that amount.

Ratio Decidendi: Where Modvat credit has already been restricted at the stage of receipt from the input manufacturer, the same restriction is not to be reapplied on a subsequent removal as such under Rule 57F unless the scheme expressly so provides.

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