Modvat credit under Compounded Levy Scheme cannot lapse when assessee is excluded and assessed under normal excise procedure.

Modvat credit could not be made to lapse under the Compounded Levy Scheme where the assessee was excluded by the amended notification and was therefore not required to operate under Section 3A of the Central Excise Act, 1944. The lapse provision applied only to assessees actually governed by that scheme; since duty was ultimately paid under the normal procedure under Section 3, the statutory condition for lapsing of credit was not attracted. The demand was therefore unsustainable, and the order under challenge was set aside.

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Issues: Whether Modvat credit was liable to lapse where the assessee was excluded from the Compounded Levy Scheme by the amended notification and ultimately paid duty under the normal procedure.

Analysis: The appellants were initially within the Compounded Levy Scheme, but the scheme's implementation was deferred and the amended notification excluded units having the relevant pinion distance. As the appellants fell within the excluded category, they were not required to operate under the Compounded Levy Scheme. The provision providing for lapsing of credit applied only to assessees actually working under that scheme under Section 3A of the Central Excise Act, 1944. Since duty was finally paid under the normal procedure under Section 3 of the Central Excise Act, 1944, the condition for lapsing of Modvat credit was not attracted.

Conclusion: The lapsing of credit could not be applied to the appellants, and the demand against them was unsustainable.

Final Conclusion: The order under challenge was set aside and the appeal succeeded.

Ratio Decidendi: A provision for lapsing of Modvat credit under the Compounded Levy Scheme cannot be applied to an assessee who is excluded from that scheme by amendment and who is assessed and pays duty under the normal excise procedure.

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