Modvat credit on capital goods lapsed after rule amendment; Eicher Motors and res judicata did not save the unutilised credit.

Unutilised Modvat credit lying in the capital goods account on 31-7-1997 lapsed after Notifications 33/1997 and 34/1997-C.E. (N.T.) amended Rule 57S from 1-8-1997. The Tribunal distinguished Eicher Motors, noting that it concerned inputs already used in manufacture and did not address the compounded levy scheme under Section 3A or the validity of the amended notifications. It also held that res judicata could not extend the earlier reasoning to materially different facts and a different legal setting. The order permitting retention of the credit was therefore set aside.

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Issues: Whether the unutilised Modvat credit standing in the capital goods account as on 31-7-1997 lapsed under the amended notifications and could be saved by applying the ratio of Eicher Motors on the basis of res judicata.

Analysis: The respondent had availed credit on capital goods under Rule 57Q of the Central Excise Rules, and the credit remained unutilised when Notifications 33/1997 and 34/1997-C.E. (N.T.) amended Rule 57S with effect from 1-8-1997. The Tribunal held that Eicher Motors dealt with a different situation involving inputs already used in manufacture before the amendment and did not consider the compounded levy scheme under Section 3A of the Central Excise Act, 1944 or the validity of the impugned notifications. The Tribunal further held that its earlier reasoning could not be transplanted to the present facts through res judicata, because the legal setting and the nature of the credit were materially different.

Conclusion: The credit lying in the capital goods account as on 31-7-1997 lapsed, and the order allowing the credit was set aside.

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