Accumulated Modvat credit refund cannot be denied on a first-use theory; refund remains available when utilisation is not possible.

Rule 57F(13) of the Central Excise Rules was read as requiring the Revenue to permit utilisation of accumulated Modvat credit against duty on clearances, with refund available where adjustment was not possible. The Tribunal rejected the view that the manufacturer had to exhaust domestic clearances or export clearances on payment of duty before seeking refund. Because the credit had accumulated in relation to exports under bond, refusal of refund on a supposed first-use requirement was not justified. The refund claim was therefore allowable and the denial of refund was unsustainable.

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Issues: Whether refund of accumulated Modvat credit could be denied on the ground that the manufacturer was first bound to utilise the credit for domestic clearances or exports on payment of duty before seeking refund under Rule 57F(13) of the Central Excise Rules.

Analysis: The relevant rule provided that credit of specified duty on inputs used in export goods should be allowed to be utilised towards payment of duty on final products cleared for home consumption or for export on payment of duty, and where such adjustment was not possible, refund could be granted subject to prescribed safeguards. The Tribunal held that the wording cast the mandate on the Revenue to permit utilisation of credit, and not on the assessee to treat refund as a last resort only after exhausting every possible utilisation. Since the assessee had accumulated credit in relation to exports under bond, there was no basis to refuse refund merely because the Commissioner (Appeals) read the rule as imposing a compulsory first-use requirement on the manufacturer.

Conclusion: The refund claim was allowable and the denial of refund was unsustainable.

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