Modvat credit on duty actually paid was allowed where the dispute was revenue neutral and classification did not affect revenue.

Modvat credit was admissible where the disputed products had in fact suffered duty and the credit claimed related to duty actually paid. The dispute over classification was not required to be examined for disposal because the situation was revenue neutral and caused no revenue loss. On that basis, denial of credit, together with consequential interest and penalty, was not sustained, and the appellant was held entitled to the Modvat credit.

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Issues: Whether Modvat credit was admissible when the disputed products had suffered duty and the exercise was revenue neutral despite the classification dispute.

Analysis: The credit had been denied on the footing that the products were classifiable under a heading attracting nil duty, with consequential recovery of interest and penalty. The decisive fact was that duty had in fact been discharged on the products. On that basis, taking credit of the duty actually paid did not cause any revenue loss and the matter was revenue neutral. The question of correct classification was therefore not required to be examined for disposal of the appeal.

Conclusion: The appellant was entitled to Modvat credit of the duty actually paid.

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