Modvat refund and interest entitlement upheld where credit records supported the claim and Section 11BB applied from the operative date.

CESTAT held that a refund claim was consequential to the earlier favourable Modvat credit decision, because the record showed the disputed credit was available and the Department failed to produce a reliable verification report. Rejection based on an alleged nil balance in one register was found inconsistent with the earlier adjudication record, so refund of the amount paid through PLA and re-credited in RG-23A Part II was allowed. On interest, entitlement arose only from the date Section 11BB became operative, namely three months after its introduction, and interest was payable from that permissible date.

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Issues: Whether the appellant was entitled to refund of Rs. 227.20 lakhs paid through PLA and re-credited in RG-23A Part II, and whether interest was payable on the refund.

Analysis: The amount had been paid in cash during adjudication and immediately taken back as credit. The earlier round of proceedings had already held the appellant entitled to utilize the relevant Modvat credit and had remanded only for verification of the refund claim. The lower authorities rejected the claim on the basis of a purported nil balance in one register, but the appellant maintained two genuine registers and the records showed that the available credit was never below the disputed amount. The Department could not produce a reliable verification report, and the factual findings relied upon in the impugned order were found to be inconsistent with the earlier adjudication record. The claim was therefore treated as a consequential refund flowing from the favourable merits decision. As regards interest, entitlement was recognized only from the date on which Section 11BB became operative, i.e. three months after its introduction.

Conclusion: The appellant was entitled to refund of Rs. 227.20 lakhs, with interest in terms of Section 11BB of the Central Excise Act, 1944 from the permissible date.

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