Modvat credit denied on recipient-side reclassification fails where supplier invoice classification is undisputed.

Modvat credit cannot be denied by re-classifying goods at the recipient stage when the supplier's invoice classification remains undisputed. Goods purchased for factory use were shown in the supplier's invoices under headings treated as eligible for capital goods credit, and the denial rested on treating them as parts of an air-conditioning plant under Section XVI note-based reasoning. The Tribunal held that, once the supplier's classification was not challenged, the same goods could not be re-characterised at the recipient end to refuse credit. The assessee's appeal succeeded and the Revenue's challenge failed, with consequential relief granted.

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Issues: Whether Modvat credit could be denied to the assessee by re-classifying the goods at the recipient stage as parts of an air-conditioning plant, notwithstanding that the supplier's invoices showed the goods under Chapter Headings 84.19 and 85.37 and the classification at the supplier's end was not disputed.

Analysis: The goods were admittedly purchased for use in the factory and the invoices reflected their classification under headings treated as eligible for capital goods credit. The denial was based on treating the items as parts of an air-conditioning plant by invoking Note 2 to Section XVI, but the classification adopted by the seller had not been challenged. Once the classification at the supplier's end stood undisputed, the same goods could not be re-classified at the recipient end for denying credit. The cited Tribunal decisions supported this principle and covered the dispute in favour of the assessee.

Conclusion: Modvat credit could not be denied on the basis of re-classification at the recipient end, and the issue was decided in favour of the assessee.

Final Conclusion: The order denying Modvat credit was set aside, the assessee's appeal succeeded with consequential relief, and the Revenue's challenge failed.

Ratio Decidendi: Where the supplier's classification of goods in the invoice is undisputed, the recipient cannot be denied credit by re-classifying the same goods at the recipient stage.

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