Retrospective Modvat credit denial under compounded levy rules overrides vested-right claims to unutilised capital goods credit.

Retrospective amendments to Rule 57Q(1) and the lapsing provision in Rule 57S(11) were treated as overriding any claimed entitlement to Modvat credit on capital goods under the compounded levy regime. The framework under the Central Excise Rules, 1944, read with Section 3A of the Central Excise Act, 1944, was read as expressing a clear legislative intent to deny such credit to manufacturers paying duty under compounded levy and to make unutilised credit lapse. The earlier vested-right approach based on Eicher Motors was treated as displaced by the later validating and retrospective changes considered in Coral Cosmetics, so the disputed credit was not available.

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Issues: Whether Modvat credit on capital goods was admissible to an assessee operating under the compounded levy scheme when the restrictive amendment to Rule 57Q(1) and the lapsing provision in Rule 57S(11) were introduced by Notification No. 33/97-C.E. (N.T.) dated 01.08.1997.

Analysis: The credit dispute concerned capital goods received before installation and commissioning, but the assessee commenced commercial production after the restrictive amendment had come into force. The relevant MODVAT framework under Rule 57Q(1), Rule 57Q(7) and Rule 57S(11) of the Central Excise Rules, 1944, read with Section 3A of the Central Excise Act, 1944, showed a legislative intent to deny capital goods credit to manufacturers paying duty under the compounded levy regime and to cause unutilised credit to lapse. The earlier authority's reliance on vested-right reasoning from Eicher Motors was held to be displaced by the subsequent validating and retrospective legislative changes considered in Coral Cosmetics, which removed the basis of the earlier line of authority.

Conclusion: The assessee was not entitled to the disputed Modvat credit on capital goods, and the Revenue's challenge succeeded.

Ratio Decidendi: Where a retrospective amendment and accompanying lapsing provision expressly withdraw credit entitlement under the compounded levy regime, unutilised Modvat credit cannot be claimed as a vested right.

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