Retrospective amendment on Modvat credit removes earlier bar where capital goods were booked as revenue expenditure.

Retrospective amendment can remove a prior statutory bar to Modvat credit on capital goods where the goods were booked as revenue expenditure. Under the erstwhile Central Excise Rules, 1944, that booking initially disqualified credit for the relevant period, but the Finance Act, 2003 retrospectively altered the position and removed the basis for denial. The commentary states that once the statutory disqualification was cured with retrospective effect, a denial founded solely on that bar could not stand, and relief to the assessee followed.

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Issues: Whether Modvat credit on capital goods could be denied for the relevant period on the ground that the value of such goods was shown as revenue expenditure in the books, and whether the retrospective amendment under the Finance Act, 2003 ? removed that bar.

Analysis: The relevant period was August 1995 to February 1997. During that period, Rule 57R of the erstwhile Central Excise Rules, 1944 placed a restriction on availing Modvat credit on capital goods where their value was claimed as revenue expenditure. The restriction was subsequently altered by retrospective legislative amendment under Section 149 read with Schedule 6 of the Finance Act, 2003. In view of that retrospective change, the basis on which credit had been denied no longer survived.

Conclusion: The denial of Modvat credit was unsustainable and the assessee was entitled to relief.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: A retrospective amendment removing the statutory bar on Modvat credit cures the earlier disqualification and nullifies a denial founded solely on that bar.

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