Modvat credit on tray castings allowed where departmental circular confirmed eligibility under Rule 57Q.

Modvat credit on tray castings used in manufacture under Rule 57Q was held allowable because a departmental circular dated 2.12.1996 clarified that such goods qualified for the benefit. Denial of credit merely because the circular was not cited at the earlier hearing was found unjustified, since substantive eligibility already existed and the department should not have contested a claim contrary to its own clarification. The later grant of the same benefit for a subsequent period also supported the assessee's entitlement. The Tribunal's orders denying Modvat credit were set aside.

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Issues: Whether the assessee was entitled to Modvat credit on tray castings used in manufacture in terms of Rule 57Q of the Central Excise Rules, 1944 and the departmental circular dated 2.12.1996.

Analysis: The entitlement of the assessee to Modvat credit on tray castings was not in dispute on the merits, as the departmental circular clarified that such tray castings qualified for the benefit under Rule 57Q. Denial of credit solely because the circular was not cited before the Tribunal was held to be unjustified. The reasoning also noted that the department itself ought not to have pursued litigation contrary to its own clarification, and that rectification should have followed once the circular was brought to notice. The subsequent grant of the same benefit for a later period reinforced the assessee's entitlement.

Conclusion: The assessee was held entitled to Modvat credit on tray castings, and the Tribunal's orders denying the benefit were set aside.

Ratio Decidendi: Where a departmental circular clarifies eligibility for Modvat credit on specified goods, credit cannot be denied merely because the circular was not cited at the earlier hearing if the substantive entitlement otherwise exists.

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