Lapsed MODVAT credit barred duty demand on stock inputs after withdrawal of the facility and shift to compounded levy.

Where MODVAT credit on inputs had already lapsed after withdrawal of the facility for notified goods and a shift to the compounded levy scheme, no duty could thereafter be demanded on inputs lying in stock. The applicable rule treated the unutilised balance credit as lapsed from the notified date, so the department had no basis to recover duty in respect of those inputs. The matter was treated as covered by the same principle applied in earlier similar situations, and the demand was held unsustainable in favour of the assessee.

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Issues: Whether duty could be demanded on inputs lying in stock when the unutilised MODVAT credit had lapsed on withdrawal of the facility and the manufacturer had shifted to the compounded levy scheme.

Analysis: The MODVAT facility stood withdrawn for the notified goods with effect from 1-8-1997. The balance credit relating to inputs on the notified date remained unutilised and, under the applicable rule, stood lapsed. Once the credit had lapsed, no further duty demand could be made in respect of the inputs lying in stock. The matter was treated as covered by the earlier view applying the same principle in similar circumstances.

Conclusion: The duty demand was unsustainable and the appeal succeeded in favour of the assessee.

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