Modvat credit on invoices issued after surrender of registration is inadmissible; penalty sustained, but interest not chargeable on credit amounts.

Modvat credit was held inadmissible where the supporting invoices were issued by a supplier who had already surrendered excise registration and ceased to be a manufacturer, because valid credit required prescribed documents issued by a registered manufacturer and no movement of goods under those invoices was established. On that footing, recovery of the wrongly availed credit was sustained and penalty was upheld. Interest, however, was not sustainable because Section 11AA applies to duty and does not extend to credit amounts. The appeal succeeded only to the limited extent of setting aside interest, while disallowance and recovery of credit and the penalty were maintained.

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Issues: (i) Whether credit could be availed on invoices issued by a manufacturer who had surrendered registration before the invoices were issued and had ceased to exist as a manufacturer. (ii) Whether penalty and interest were sustainable where the credit was held to be ineligible.

Issue (i): Whether credit could be availed on invoices issued by a manufacturer who had surrendered registration before the invoices were issued and had ceased to exist as a manufacturer.

Analysis: Credit under the Modvat scheme was available only when the goods were covered by valid prescribed documents, including an invoice issued by a manufacturer who was registered under the excise law. Once registration was surrendered on cessation of manufacture, the person could no longer issue valid invoices for the purpose of credit. The invoices in question were issued after surrender of registration, and no movement of goods under those invoices was established.

Conclusion: Credit on the disputed invoices was not admissible and the recovery of credit was justified.

Issue (ii): Whether penalty and interest were sustainable where the credit was held to be ineligible.

Analysis: Once ineligible credit had been taken, the consequence of penalty followed. Interest under Section 11AA was confined to duty and could not be applied to credit amounts.

Conclusion: Penalty was upheld, but interest was not sustainable.

Final Conclusion: The appeal succeeded only to the limited extent of setting aside interest, while the disallowance and recovery of credit and the penalty were maintained.

Ratio Decidendi: Credit under the Modvat scheme cannot be availed on invoices issued after the supplier has surrendered registration and ceased to be a manufacturer, and interest provisions applicable to duty do not extend to credit amounts.

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