Modvat credit refund in cash permitted where departmental action blocked utilisation and duty liability had ceased

Modvat credit was treated as duty credit on inputs, and the refund framework under Section 11B of the Central Excise Act was read to cover such credit. Where the assessee was prevented, without fault, from utilising the credit for duty payment because of departmental action and the final product had ceased to attract duty, a mere paper credit would defeat the scheme's intended relief. Earlier Tribunal rulings were followed to permit cash or cheque refund in such circumstances, with the non-payment rule confined to cases where utilisation remained possible. Cash refund of the Modvat credit was therefore held permissible.

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Issues: Whether cash refund of Modvat credit was permissible when the assessee could not utilise the credit for payment of duty on the final product because of departmental action and the final product had ceased to attract duty.

Analysis: Rule 57A treated Modvat credit as credit of duty paid on inputs, and the refund framework under Section 11B of the Central Excise Act, 1944 was read as covering such credit by virtue of the proviso excluding refund of duty credit on input goods. The Tribunal noted that where the assessee, without fault on its part, was prevented from utilising the credit, insistence on a mere paper credit would deny the relief intended by the scheme. In such a situation, earlier Tribunal decisions had permitted refund in cash or by cheque, and the non-payment rule was understood as confined to ordinary cases where utilisation remained possible.

Conclusion: Cash refund of the Modvat credit was permissible, and the departmental appeal failed.

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