Modvat credit reversal must be checked against actual entitlement, and excess reversal cannot be rejected merely as voluntary payment.

Excess Modvat credit reversed under a departmental amnesty formula was held to require verification on actual figures, because the circulars and later clarification permitted correction where the amount reversed exceeded the credit actually availed. The payment was treated as made under departmental direction and protest, not as a purely voluntary discharge. The claim could not be rejected merely because earlier customs proceedings had been closed, since the refund dispute concerned the quantum actually required to be reversed and called for independent de novo scrutiny. The matter was remanded for fresh determination with opportunity to adduce evidence.

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Issues: (i) Whether the assessee was entitled to restoration or refund of excess Modvat credit reversed while complying with the departmental formula under the amnesty scheme; (ii) whether the claim could be denied on the ground that the reversal was voluntary or that the earlier closure of customs proceedings had attained finality.

Issue (i): Whether the assessee was entitled to restoration or refund of excess Modvat credit reversed while complying with the departmental formula under the amnesty scheme.

Analysis: The relevant circulars permitted reversal of credit on an actual basis, and the later clarification recognized that excess reversal could be corrected where the amount reversed exceeded the Modvat credit actually availed. The majority held that the departmental formula should not be treated as conclusive where the assessee produced a claim that the actual credit attributable to the exported goods was lower, and the matter required factual verification of the exact credit to be reversed.

Conclusion: The assessee was entitled to have the excess reversal examined and restored if found to be more than what was actually required.

Issue (ii): Whether the claim could be denied on the ground that the reversal was voluntary or that the earlier closure of customs proceedings had attained finality.

Analysis: The majority held that the payment was made under protest pursuant to departmental direction and not as a pure voluntary payment. It was further held that the subsequent refund claim did not amount to impermissibly reopening the customs matter, because the issue in the refund proceedings was the quantum of credit actually required to be reversed, which needed independent consideration. The matter therefore called for de novo scrutiny rather than outright rejection.

Conclusion: The claim could not be rejected solely on the grounds of voluntariness or finality of the earlier customs proceedings.

Final Conclusion: The impugned order was set aside and the matter was remanded for fresh determination of the credit actually required to be reversed, with opportunity to the assessee to adduce evidence.

Ratio Decidendi: Where credit is reversed under departmental directions but the assessee shows that the reversal may exceed the credit actually attributable to the relevant inputs, the excess must be tested on actual figures in de novo proceedings and cannot be rejected merely because the earlier reversal was made under an amnesty-driven formula.

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