Accumulated Modvat credit cannot lapse through later rule changes when departmental restraint prevented its utilisation.

Accumulated Modvat/CENVAT credit could not be denied merely because the assessee opted out of the scheme, where the credit remained unutilised due to departmental restraint and unresolved procedural inaction. Rule 57H(7) of the Central Excise Rules, 1944 could not be used to treat the balance credit as lapsed when it came into force after the assessee had opted out. The tribunal's view that the assessee could carry the credit into the CENVAT account and use it for duty payment was upheld on those facts.

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Issues: Whether the assessee could be denied utilisation of accumulated Modvat/CENVAT credit on the ground of opting out of the scheme, and whether Rule 57H(7) of the Central Excise Rules, 1944 could be invoked to treat the balance credit as lapsed.

Analysis: The accumulated credit remained unutilised not because of any act attributable to the assessee, but because the department itself kept the matter under dispute for years and restrained utilisation while it failed to evolve the required procedure. The credit, therefore, continued to remain in the assessee's account except for the amount earlier utilised and later reversed. Rule 57H(7) could not assist the Revenue because the sub-rule came into force only on 1.3.1997, whereas the assessee had opted out of the Modvat scheme on 1.1.1997. On these facts, the Tribunal's view that the assessee should be permitted to take the credit in the CENVAT account and use it for payment of duty was found to be correct.

Conclusion: The assessee was entitled to utilise the accumulated credit, and the Revenue's reliance on Rule 57H(7) to deny that benefit failed.

Ratio Decidendi: Where accumulated duty credit remains unutilised because of departmental restraint and unresolved procedural inaction, a subsequently introduced lapse provision cannot be applied retrospectively to deprive the assessee of the credit.

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