Modvat credit restriction under an invalid notification could not stand once binding High Court precedent covered the duty-paid inputs.

A binding High Court ruling declared the restrictive portion of Notification No. 14/97-CE (NT) illegal, so the Tribunal held that the notification-based cap on Modvat credit could not be sustained. Where the inputs had suffered duty at 15% ad valorem, the earlier contrary view had to yield to that precedent, and the rectification application was allowed. The demand was therefore set aside in favour of the assessee.

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Issues: Whether the rectification application could be allowed by taking into account a binding High Court precedent on the validity of Notification No. 14/97-CE (NT) and the consequent restriction on Modvat credit.

Analysis: The notification limiting Modvat credit to the extent of duty calculated at 10% ad valorem was held illegal by the High Court, and the Tribunal noted that the goods in the present case had suffered duty at 15% ad valorem. As the High Court decision directly covered the issue, the earlier contrary conclusion could not stand and the notification-based restriction on credit was not sustainable.

Conclusion: The rectification application was allowed and the demand was set aside in favour of the assessee.

Ratio Decidendi: A restriction on Modvat credit under the impugned notification cannot be applied where the inputs were purchased on payment of duty at 15% ad valorem, since the High Court has declared the restrictive portion of the notification illegal and binding.

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