Retrospective MODVAT credit restriction validated recovery despite Section 11A limitation, with demand and interest upheld.

Section 87 of the Finance Act, 1997 retrospectively restricted MODVAT credit from 23.07.1996 and validated recovery of credit that had been wrongly availed under the earlier regime. The Court held that the recovery mechanism in Section 87 operated independently of Section 11A of the Central Excise Act, 1944, so the absence of allegations of fraud, suppression, or wilful misstatement in the notice did not bar recovery. The authorities distinguishing J.K. Spinning and Weaving Mills Ltd. and Jindal Poly Films Ltd. were held inapplicable on the facts. The demand for reversal of credit with interest was therefore upheld.

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Issues: Whether the demand for recovery of MODVAT credit with interest for the period 23.07.1996 to 28.02.1997 was justified, and whether the limitation under Section 11A of the Central Excise Act, 1944 curtailed recovery under Section 87 of the Finance Act, 1997.

Analysis: The credit had been availed under Notification No. 5/94-CE (NT) issued under Rule 57A of the Central Excise Rules, 1944, and the later Notification No. 14/97-CE (NT) restricted the credit on specified inputs. Section 87 of the Finance Act, 1997 gave that restriction retrospective effect from 23.07.1996 and also validated recovery of credit that ought to have been restricted. The show cause notice did not invoke the extended period on allegations of fraud, suppression, or wilful misstatement, but the Court held that Section 11A could not control recovery under Section 87 because the validating provision expressly created a retrospective recovery regime and was not subject to the limitation under Section 11A. The plea based on J.K. Spinning and Weaving Mills Ltd. was distinguished on the basis that Section 87 itself contained a specific recovery mechanism and validation clause, while the reliance on Jindal Poly Films Ltd. was held inapplicable to the facts.

Conclusion: The demand and interest were held to be valid, and the question of law was answered in favour of the Revenue and against the assessee.

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