Prospective amendment to Rule 96ZI cannot defeat accrued Modvat credit already earned before the change.

Amendment to Rule 96ZI of the Central Excise Rules, 1944 could not retrospectively withdraw Modvat credit that had already accrued when capital goods entered the factory and the credit was entered before the amendment. Because the proviso inserted with effect from 2-6-1998 did not clearly state that it applied retrospectively, it was treated as prospective only. A later restriction cannot defeat an accrued credit entitlement under the existing scheme unless the legislative text clearly provides otherwise. The assessee was therefore entitled to use the already accrued credit, and the amendment could not be invoked to deny it.

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Issues: Whether the amendment introduced to Rule 96ZI of the Central Excise Rules, 1944 could retrospectively deny Modvat credit that had already accrued before the amendment, and whether the assessee was entitled to utilize such credit notwithstanding the later prohibition.

Analysis: The credit had accrued when the capital goods were brought into the factory and the duty-paid credit was entered prior to the amendment. The amended proviso, inserted with effect from 2-6-1998, did not expressly provide for retrospective operation. An amendment that restricts or takes away an already accrued credit entitlement cannot be applied to transactions completed before its commencement unless the legislative text clearly so states. The principle applied was that a right to credit, once accrued under the existing scheme, cannot be defeated by a later amendment operating only from its stated effective date.

Conclusion: The amendment to Rule 96ZI was prospective and could not be used to deny the Modvat credit already accrued to the assessee. The issue was decided in favour of the assessee.

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