Modvat credit limitation rule: extended period cannot be used against a buyer absent knowledge of the supplier's later classification dispute.

Modvat credit on capital goods could not be denied by invoking the extended period merely because the supplier's classification was altered later, where the duty-paying documents then on record showed a heading eligible for credit and there was no evidence that the buyer knew of the supplier's classification dispute. On that basis, the demand lacked legal support on limitation, the denial of credit was set aside, and the order-in-appeal was quashed, restoring the adjudicating authority's order dropping the proceedings.

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Issues: Whether the extended period could be invoked to deny Modvat credit on capital goods when the goods were cleared under a classification shown in the duty-paying documents and the classification dispute arose later in the manufacturer's own case.

Analysis: The credit was taken on goods purchased during October 1998 to February 1999 when the documents reflected a tariff heading under which Modvat/Cenvat credit was available. The subsequent change in the manufacturer's classification could not, by itself, be used against the buyer to invoke the extended period, particularly when there was no evidence that the buyer was aware of the classification dispute pending against the manufacturer. The demand for reversal, therefore, lacked legal support on limitation.

Conclusion: The invocation of the extended period was not sustainable and the denial of Modvat credit was set aside.

Final Conclusion: The order-in-appeal was quashed and the adjudicating authority's order dropping the proceedings was restored, resulting in allowance of the appeal.

Ratio Decidendi: An assessee cannot be denied Modvat credit by invoking the extended period merely because the supplier's classification was later altered, where the duty-paying documents then on record showed a heading permitting credit and there is no able knowledge of the classification dispute on the assessee's part.

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