Modvat credit on duty-paid inputs cannot be denied merely because the duty was later disputed as not payable.

Modvat credit on duty-paid inputs could not be denied merely because the duty on those inputs was later claimed to be not legally payable. The governing principle applied was that any objection to incorrect payment of duty must be examined at the stage and place where the duty was paid, not when the recipient avails credit. On that basis, the recipient's credit was held admissible, and the revenue challenge failed. The question of limitation was not examined.

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Issues: Whether Modvat credit could be denied to the receiver of inputs on the ground that the duty paid on those inputs was not legally payable.

Analysis: The inputs were received on payment of duty and credit had been taken accordingly. The governing principle applied was that credit cannot be disallowed merely because the duty was subsequently claimed to be not leviable on the inputs. Any objection to the incorrect payment of duty has to be examined at the stage and place where such duty was paid, not at the stage of the recipient availing credit. In view of this settled position, the respondent's credit was held to be admissible, and the question of limitation was not examined.

Conclusion: Modvat credit could not be denied on the ground that the duty on the inputs was allegedly not payable, and the respondent was entitled to the credit.

Final Conclusion: The revenue challenge failed and the order dropping the proceedings was sustained.

Ratio Decidendi: Where duty-paid inputs are received, credit cannot be denied to the recipient merely because the duty on those inputs was claimed to have been wrongly paid.

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