Retrospective curtailment of MODVAT credit rejected where earned credit remained protected by the saving clause

Credit earned under the MODVAT scheme on duty-paid inputs accrues as a protected entitlement once validly taken, and a later notification cannot retrospectively extinguish that credit without clear express language. Clause 5 of Notification No. 36/98-C.E. was therefore treated as inapplicable to credit already standing to the assessee's account before 16-12-1998, especially where the notification itself saved goods manufactured before that date and cleared later. The existing MODVAT credit was protected and remained utilisable.

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Issues: Whether Clause 5 of Notification No. 36/98-C.E. dated 10-12-1998 could be applied retrospectively to deny utilisation of MODVAT credit already earned on inputs or capital goods prior to 16-12-1998, and whether credit relating to goods manufactured before that date could still be availed.

Analysis: Under the MODVAT scheme, credit accrues when duty-paid inputs are used in the manufacture of final products, and such credit is treated as equivalent to duty paid. A subsequently introduced restriction cannot take away credit already earned unless the statute or notification clearly and expressly provides for such retrospective divestment. The notification itself also contained a saving clause excluding goods manufactured prior to 16-12-1998 and cleared on or after that date, which supports protection of pre-existing credit entitlement.

Conclusion: Clause 5 could not retrospectively nullify MODVAT credit already earned by the assessee, and the petitioners were entitled to utilise the credit standing to their account as on 16-12-1998.

Final Conclusion: The writ petitions succeeded, and the petitioners' entitlement to utilise the existing MODVAT credit was protected.

Ratio Decidendi: Credit earned under a MODVAT scheme on duty-paid inputs becomes an accrued and protected entitlement, and a later notification cannot retrospectively extinguish that entitlement in the absence of clear legislative language.

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