Modvat credit on debonded capital goods was upheld where duty payment through T.R.6 challan was traceable to the goods.

Modvat credit was considered admissible on debonded capital goods of a 100% Export Oriented Unit where duty had been paid after the credit scheme came into force. The objection that payment through a T.R.6 challan was not a prescribed document was rejected because the payment was correlatable to the goods. A Board circular was also read as permitting credit not only for imported capital goods but also for capital goods procured from the domestic market, so denial of credit was unsustainable.

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Issues: Whether Modvat credit was admissible on duty paid on debonded capital goods of a 100% Export Oriented Unit when duty was discharged through T.R.6 challan, and whether credit could extend to capital goods procured from the domestic market.

Analysis: The duty on the debonded capital goods was paid after the capital goods credit scheme had come into force and been expanded. The Board's circular clarified that credit was not confined to imported capital goods and could also be allowed for capital goods procured domestically. The objection that T.R.6 challan was not a specified document was negatived by following the Tribunal's earlier view that such payment could be correlated to the goods and therefore could support credit.

Conclusion: Modvat credit was admissible to the assessee on the debonded capital goods, and the denial of credit was not sustainable.

Ratio Decidendi: Where duty is paid on debonded capital goods after the relevant credit scheme is in force, credit cannot be denied merely because payment was made through T.R.6 challan if the payment is correlatable to the goods and the governing circular recognises credit on domestically procured capital goods as well.

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