Modvat credit on transitional inputs cannot be denied where incorrect classification and departmental inaction prevented timely claim.

Modvat credit could not be denied on inputs consumed before filing the declaration where the assessee had been pursuing correct classification, had filed the requisite declaration, and was deprived of the credit facility because of departmental inaction and incorrect classification. The later amended transitional provision did not override that entitlement in these circumstances, as the denial was not attributable to any failure by the assessee. The applicable principle is that transitional credit benefit remains available where the assessee has otherwise complied and the only obstacle was an erroneous departmental classification.

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Issues: Whether the assessee was entitled to Modvat credit on inputs consumed before filing the declaration where the benefit was denied because of wrong classification and the later amended form of the transitional rule.

Analysis: The claim for credit arose out of the assessee's repeated efforts to secure correct classification and to avail Modvat from the inception of the scheme. The denial of credit was founded only on the amended form of the transitional provision, although the assessee had already been pursuing the matter and had filed the necessary declaration. The earlier decision relied upon by the assessee was treated as applicable because the factual setting showed continued agitation of the issue and deprivation of the credit facility due to departmental inaction and incorrect classification, rather than any failure on the assessee's part. In these circumstances, the later amendment could not be used to defeat the credit claim for the relevant inputs.

Conclusion: The assessee was entitled to Modvat credit on the disputed inputs, and the challenge to the grant of such credit failed.

Ratio Decidendi: Where an assessee has been prevented from claiming Modvat credit by incorrect departmental classification and has otherwise pursued the matter and filed the requisite declaration, the transitional credit benefit cannot be denied merely by relying on a later amendment to the rule governing such credit.

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