Limitation for Modvat credit demand failed where clearances were disclosed and the law remained unsettled during the relevant period.

Modvat credit demand was treated as time-barred under Rule 57I because the relevant clearances were disclosed in statutory records and returns, and the department knew the final products were being cleared under Chapter X procedure without duty. The assessees also had a bona fide belief that credit was available, as the period preceded a Larger Bench ruling and Tribunal views were then conflicting. On that basis, the extended limitation period was not available, and the relevant date for limitation was linked to the date of taking credit.

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Issues: Whether the demand of Modvat credit was barred by limitation under Rule 57I of the Central Excise Rules on the ground that the department had knowledge of the clearances under Chapter X procedure and that the law was unsettled during the relevant period.

Analysis: The appellants had disclosed the relevant clearances through statutory records and returns, and the department was aware that the final products were being cleared without payment of duty under Chapter X procedure. The period involved was prior to the Larger Bench ruling that settled the legal position, and there were conflicting Tribunal views during the relevant time. On these facts, the appellants could entertain a bona fide reasonable belief regarding availability of Modvat credit. The reasoning also supported the view that the relevant date for limitation was the date of taking credit, and the demand could not be sustained by invoking the extended period.

Conclusion: The demand was held to be time-barred and the appeals were allowed in favour of the assessee.

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