Modvat credit recovery notice quashed as time-barred and unsustainable after the dispute had already been settled.

A show cause notice demanding reversal of Modvat credit was found unsustainable because the Department had earlier accepted the credit position, the excisability dispute had already been settled in the assessee's favour, and no contemporaneous objection had been raised when the credit was taken. Section 5-B of the Central Excise Act was treated as an enabling provision, not an independent recovery basis, and Rule 57-I of the Central Excise Rules was held to be only a recovery machinery that could not support a reopened demand on these facts. The notice was also issued after an unreasonable delay and was therefore time-barred; the alternative remedy was not regarded as efficacious.

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Issues: Whether the impugned show cause notice demanding reversal of Modvat credit was sustainable in law, particularly on the grounds of limitation, arbitrariness, and availability of an efficacious alternative remedy.

Analysis: The dispute regarding the excisability of the petitioner's final products had already been settled in the petitioner's favour, and the duty had been paid under protest during the relevant period. The Court found that the Department had accepted the Modvat position at the material time and had raised no contemporaneous objection to the credit availed. The later issuance of the notice, long after the credit was taken and after the favourable final decision, was held to be an impermissible attempt to reopen a settled position. Section 5-B of the Central Excise Act, 1944 was treated as an enabling provision and not a basis for recovery merely because no notification had been issued. Rule 57-I of the Central Excise Rules, 1944 was also held to be a machinery provision for recovery of wrongly availed credit, which could not justify the impugned demand in the peculiar facts. The Court further held that the notice was issued beyond a reasonable period and was therefore hit by limitation. In these circumstances, the alternative remedy was not considered efficacious.

Conclusion: The show cause notice was unsustainable, arbitrary, and time-barred, and was quashed.

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