MODVAT credit on high speed diesel oil: recovery for the pre-March 1998 period could not be enforced after finality and earlier refund

MODVAT credit on high speed diesel oil was ultimately disallowed from 2 March 1998, and Section 112 of the Finance Act, 2000 retrospectively validated denial from 16 March 1995. However, because the Department had earlier stated before the Supreme Court that refund had already been made and the prior orders had attained finality, it was not permitted to recover credit already allowed for the period before 1 March 1998. The demand notices seeking such recovery were set aside and enforcement of the recovery was restrained.

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Issues: Whether the Department could recover MODVAT credit availed on high speed diesel oil for the period prior to 1 March 1998 and enforce the impugned demand notices.

Analysis: The MODVAT scheme under Rules 57A, 57B and 57D of the Central Excise Rules, 1944 underwent several notifications, and the scheme was ultimately clarified so that credit on high speed diesel oil stood disallowed from 2 March 1998. Although Section 112 of the Finance Act, 2000 retrospectively validated denial of such credit from 16 March 1995, the Court proceeded on the basis of the Department's earlier statement before the Supreme Court that refund had already been given and that the prior orders had attained finality. In those circumstances, the Department could not seek to recover the credit allowed for the period before 1 March 1998.

Conclusion: The impugned demand notices seeking recovery of MODVAT credit on high speed diesel oil for the period prior to 1 March 1998 were set aside, and the Department was restrained from enforcing such recovery.

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