Prospective application of Modvat credit restrictions bars differential duty credit when the claim arises after the amendment.

Modvat credit on differential duty paid by the supplier was held unavailable where the buyer's entitlement arose only after Rule 57E(3) had come into force. Rule 57A created the substantive credit right, but Rule 57E governed the procedure and the conditions for adjustment, and the amended sub-rule expressly restricted credit in cases involving fraud, suppression or intent to evade duty. Applying the principle that an amendment affecting entitlement operates prospectively unless clearly made retrospective, the relevant law was the one in force when the credit was claimed. The denial of the disputed differential credit was therefore sustained.

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Issues: Whether Modvat credit of differential duty paid by the supplier-manufacturer could be denied to the buyer under Rule 57E(3) of the erstwhile Central Excise Rules, 1944, when the inputs were cleared before the sub-rule came into force but the differential duty was paid and the certificate obtained after its insertion.

Analysis: Rule 57A conferred the substantive right to Modvat credit, while Rule 57E regulated the procedure for adjustment of credit. Sub-rule (3) of Rule 57E, introduced on 1-3-1997, expressly excluded cases where additional duty became recoverable because of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade duty. The Court applied the principle that an amendment affecting the availability of credit operates prospectively unless the language indicates retrospectivity. The buyer's entitlement to the additional credit arose only when the supplier paid the differential duty in 1999, by which time Rule 57E(3) was already in force. The Court also distinguished decisions dealing with vested rights and penal provisions, and held that the law prevailing when the credit was claimed governed the entitlement.

Conclusion: The denial of Modvat credit under Rule 57E(3) was valid and the challenge failed.

Final Conclusion: The buyer was not entitled to the disputed differential credit, and the order sustaining the denial was upheld.

Ratio Decidendi: An amendment to a procedural Modvat-credit provision that expressly restricts entitlement applies prospectively to claims arising after its commencement, and credit cannot be claimed where the qualifying event occurs only after the restrictive amendment is already in force.

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