Modvat credit on inputs cannot be denied to a buyer absent variation of the supplier's assessment and duty finding.

Modvat credit on inputs cannot be denied to the buyer merely because the supplier's duty payment is questioned, where the original assessment of the inputs has not been varied. Credit is linked to the duty shown as paid on the inputs, and the buyer is not required to verify whether the manufacturer has correctly discharged duty. Any reduction in credit must follow a consequential finding in proceedings against the supplier that duty was not properly paid. On that basis, denial of Modvat credit was unwarranted and the Revenue's challenge failed.

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Issues: Whether Modvat credit on inputs could be denied to the buyer when the supplier's assessment had not been varied and the duty shown as paid on the inputs had been taken as credit.

Analysis: Credit under the Modvat scheme is linked to the actual duty paid on the inputs. The buyer is not required to ensure that the manufacturer of the inputs has correctly discharged duty. Any reduction or variation in Modvat credit can arise only consequentially after a finding in proceedings against the supplier that duty was not correctly paid. In the absence of any such variation of the original assessment of the inputs, denial of credit was unwarranted.

Conclusion: The denial of Modvat credit was unjustified and the Revenue appeal failed.

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