Suo motu re-credit of reversed Modvat credit is impermissible without statutory refund procedure and proper sanction.

Suo motu re-credit of Modvat/Cenvat credit earlier reversed is impermissible unless it is restored through the prescribed refund mechanism and with proper sanction. The commentary notes that unilateral re-entry of credit in the assessees account cannot be treated as a mere accounting adjustment where the statutory procedure for refund or restoration has not been followed. It further states that arguments based on the nature of the advance licences, or on alleged overreach beyond the show cause notice, do not validate the credit entry once the required excise-law process remains uncomplied with.

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Issues: Whether the appellant was entitled to take suo motu re-credit of the Modvat credit earlier reversed after conversion of value based advance licences into quantity based advance licences, and whether such re-credit could be sustained without following the prescribed refund procedure.

Analysis: The majority held that the decisive question was the legality of the assessee's own re-credit of the amount earlier reversed. In the absence of sanction or concurrence by the proper authority, a credit entry made afresh in the Cenvat/Modvat account could not be treated as a mere accounting adjustment. Reliance was placed on the principle that refunds and restoration of credit must be pursued in the manner provided by the Central Excise law and cannot be claimed by unilateral action. The view that the licences were effectively quantity based from the beginning and that the lower authorities had travelled beyond the show cause notice was treated as insufficient to validate the suo motu credit once the procedural requirement for refund or restoration had not been complied with.

Conclusion: The appellant was not entitled to take suo motu re-credit of the reversed Modvat amount, and the demand disallowing such credit was sustainable.

Final Conclusion: The majority upheld the departmental action and rejected the appeal.

Ratio Decidendi: Suo motu re-credit of reversed duty credit is impermissible unless it is sanctioned or restored in accordance with the statutory refund mechanism.

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