Transitional Modvat credit allowed for duty-paid inputs in stock, with cash refund and interest directed on admissible credit.

Transitional Modvat credit under Rule 57H(1) was available for duty-paid inputs lying in stock on the relevant date, where no credit had already been taken under another rule or notification and the prescribed declaration and records identified the duty element. On those facts, the denial of credit was based on an incorrect reading of the transitional provision. The credit was therefore allowed, and the admissible amount was directed to be refunded in cash with applicable interest.

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Issues: Whether the appellant was entitled to transfer the duty-paid credit lying in the set-off register to the Modvat account under the transitional provisions of Rule 57H(1), and consequently to cash refund of the admissible credit amount.

Analysis: The amended Rule 57H(1) empowered the Assistant Collector to allow credit of duty paid on inputs lying in stock on 25 July 1991 or received on or after that date, provided no credit had already been taken under any other rule or notification. The inputs in question were admittedly lying in stock on the relevant date, the required declaration had been filed, and the input duty was identifiable from the records. The use of the input in the manufacture of the final product was covered under the Modvat scheme, and the denial of credit proceeded on an incorrect understanding of the applicable transitional provision. In view of the statutory direction for disposal of pending proceedings relating to Cenvat credit under the existing law, the admissible credit was liable to be refunded in cash.

Conclusion: The denial of Modvat credit was set aside, and the appellant was held entitled to the disputed credit amount with consequential cash refund and applicable interest.

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