Prospective credit restriction under compounded levy scheme allowed use of pre-existing credit for fabrics outside the scheme.

Credit restrictions introduced by amendment under the compounded levy scheme operated prospectively and did not extinguish credit already earned before 1-5-2001. Fabric manufactured before the scheme became applicable, though cleared later, fell outside the compounded levy framework and was liable on an ad valorem basis. The assessee could therefore utilise pre-existing credit for duty payment on such fabrics, and the impugned order was set aside with consequential relief.

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Issues: Whether credit already earned before the assessee opted for the compounded levy scheme could be utilised towards payment of duty on fabrics manufactured before the scheme became applicable but cleared thereafter.

Analysis: The scheme came into effect from 1-5-2001 and, by its own terms, did not apply to fabrics manufactured before that date though cleared later. The restriction on availing credit under the amended notification operated prospectively and applied to goods cleared under the compounded levy scheme. Credit already accumulated prior to the effective date was not taken away for payment of duty on fabrics falling outside the scheme and cleared on ad valorem basis.

Conclusion: The assessee was entitled to utilise the credit earned before 1-5-2001 for duty payment on such fabrics.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief to the assessee.

Ratio Decidendi: A restriction on credit introduced by amendment under a tax scheme operates prospectively and does not extinguish credit already earned in respect of goods not governed by the scheme.

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