Modvat credit on inputs cleared as such: duty recoverable was tied to original duty suffered, not the later higher rate.

Rule 57F(1)(ii) was construed by the majority as a machinery provision for recovery of duty on inputs cleared as such, without reopening the original classification or assessment made when the inputs first suffered duty. On that reading, the expression "appropriate duty of excise" meant the duty originally borne by the inputs, subject to the proviso that the amount recoverable could not be less than the Modvat credit taken; the higher rate prevailing on the date of removal from the factory was not applicable. The demand at the enhanced rate was therefore unsustainable. The dissent treated the inputs as excisable goods manufactured in the factory and would have applied the rate and value prevailing on removal, subject to the credit floor.

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Issues: Whether inputs on which Modvat credit had been taken, when removed as such from the factory for home consumption under Rule 57F(1)(ii), were liable to duty at the rate prevailing on the date of removal or only to the extent of the credit originally taken.

Analysis: The majority held that Rule 57F(1)(ii) creates only a machinery provision for recovery of duty on inputs cleared as such, and that the phrase "as if such inputs have been manufactured in the said factory" does not authorise reopening of the original manufacturer's settled classification and assessment at the user's end. The rule was construed to mean that the duty to be recovered is the duty the inputs had already suffered when first cleared, subject to the proviso that the amount shall not be less than the credit taken. On that construction, the expression "appropriate duty of excise" was read as the duty originally borne by the inputs, not the enhanced rate prevailing on the date of removal from the user's factory.

Conclusion: The demand for duty at the higher prevailing rate was held unsustainable, and the appeal was dismissed.

Dissenting Opinion: V.P. Gulati, Member (T), held that Rule 57F(1)(ii) required the inputs cleared as such to be treated as excisable goods manufactured in the factory, so the duty payable had to be determined by the rate and value prevailing at the time of removal from the factory, subject to the floor of the credit taken. On that view, the appeal ought to have been allowed.

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