Modvat reversal recovery must follow the scheme's machinery, not be enforced as a duty demand under excise law.

Amounts sought under Rule 57CC/57AH were treated as scheme-linked Modvat/Cenvat reversal sums, not as duty demands enforceable under Section 11A of the Central Excise Act, so recovery in the form adopted could not stand. The text also notes that by-products emerging from manufacture may still fall within the Modvat framework, so the question of recovering wrongly availed credit required fresh examination under the appropriate rule. The confirmation of demand and penalty was set aside and the matter remanded for reconsideration of permissible recovery, with limitation left open for the assessee to raise in fresh proceedings.

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Issues: Whether the demand of 8% of the value of Corex gas and the connected penalty could be sustained under the Modvat/Cenvat reversal provisions, and whether the matter required reconsideration on the availability of recovery machinery and limitation.

Analysis: The amount sought to be recovered under Rule 57CC/57AH was held to be in the nature of a payment linked to the Modvat scheme and not a duty demand enforceable under Section 11A of the Central Excise Act, 1944. It was further held that, where the scheme did not provide an effective machinery for direct recovery of such amount, the demand could not be confirmed in the form made in the order. At the same time, the goods emerging from the manufacturing process, including an excisable by-product, were treated as capable of falling within the Modvat framework, and the matter was therefore required to be examined afresh to determine whether recovery of the originally availed credit could be pursued under the appropriate rule. The assessee was also left free to raise limitation in any such fresh proceedings.

Conclusion: The confirmation of the demand and penalty in the form made was set aside, and the matter was remanded to the Commissioner for fresh consideration of recovery, if permissible, including the plea of limitation.

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