Modvat credit during gestation stage remains admissible when production has not commenced, despite the compounded levy scheme.

Modvat credit on inputs and capital goods was allowed where the unit had not yet commenced production and remained in the gestation stage. The Tribunal held that the mere fact that the credit was taken during the subsistence of the compounded levy scheme did not, by itself, bar eligibility. On the factual finding that production had not started by the relevant date, the Revenue's restrictions did not invalidate the credit, and the Commissioner (Appeals)'s order allowing relief was found proper.

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Issues: Whether Modvat credit on inputs and capital goods was admissible when the unit was still under gestation and the credit was taken during the subsistence of the compounded levy scheme.

Analysis: The respondent had taken credit before the factory had commenced production, and the dispute turned on whether the period of the compounded levy scheme barred such credit. The Tribunal noted that the unit was still in the gestation stage and had not commenced production by the relevant date. On that factual basis, the restrictions relied upon by the Revenue were held not to apply so as to invalidate the credit taken by the respondent. The Tribunal found no infirmity in the order of the Commissioner (Appeals) allowing the credit.

Conclusion: The credit was held admissible and the Revenue's challenge failed.

Ratio Decidendi: Where a unit has not commenced production and remains in the gestation stage, credit eligibility must be tested in that context and the mere existence of the compounded levy period does not by itself bar the relief granted.

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