Buyers Can Claim Modvat Credit Based on Invoices and Payments, Supreme Court Affirms Taxpayer Rights in Crucial Ruling

SC ruled in favor of the assessee regarding Modvat credit claim. The court held that buyers can presume excise duty payment by suppliers upon receiving invoices and making payments. The tribunal's earlier decision supporting the department was overturned. The case was remanded to address remaining Modvat credit issues, ensuring both parties have an opportunity to present their arguments.

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The Jharkhand High Court addressed an appeal concerning the claim of approximately Rs. 10,00,000/- as Modvat credit by the respondent-assessee, with less than Rs. 5,00,000/- claimed based on invoices from Clutch Auto Ltd. It was undisputed that the assessee paid the full invoice amounts and that the inputs were excisable items; however, the department contended that Clutch Auto Ltd. did not deposit the excise duty due on those inputs.The Tribunal ruled in favor of the assessee, holding that the assessee was "not at fault." The department relied on Rule 57G, emphasizing the phrase "Every manufacturer intending to take credit on the duty paid on inputs," arguing that Modvat credit is only available if duty has actually been paid.The Court rejected this argument, reasoning that "once a buyer of inputs receives invoices of excisable items, unless factually established to the contrary, it will be presumed" that the duty has been or will be paid by the supplier. The Court held it "would be most unreasonable and unrealistic" to require the buyer to verify the supplier's duty payments, as "the law does not expect the impossible."Although the department cited Rule 57-I and the Tribunal's decision in IDL Chemicals Ltd. v. Commissioner of Central Excise (1996 (88) E.L.T. 710), the Court disagreed with that precedent and declined to interfere with the Tribunal's order on this point.Regarding the remaining Modvat credit amount, the Court noted the assessee's admission of voluntary deposit of wrongly claimed credit but observed the Tribunal's silence on this issue. Consequently, the Court set aside that portion of the order and remanded the matter for the Tribunal to consider the remaining issues after hearing both parties.

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