MODVAT credit on imported inputs under transitional rules was allowed for countervailing duty paid after 31 January 1986.

Rule 57H(2) of the Central Excise Rules, 1944 barred MODVAT credit for inputs on which duty was paid on or before 31 January 1986, but preserved credit where it had been otherwise allowable under Rule 57A or related provisions before 1 March 1986. On that basis, countervailing duty paid on imported chemicals used as inputs in resin manufacture after 31 January 1986 was treated as eligible, and the transitional scheme was read to cover duty-paid inputs in stock as on 1 March 1986. Where two constructions were possible, the interpretation favourable to the assessee was adopted.

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Issues: Whether MODVAT credit under the transitional provisions of Rule 57H(2) of the Central Excise Rules, 1944 was admissible on countervailing duty paid on imported chemicals used as inputs in the manufacture of resin.

Analysis: Rule 57H(2) bars credit of duty on inputs if duty was paid on or before 31 January 1986, but preserves eligibility where credit had been allowable under any rule or notification before 1 March 1986. The chemicals were admittedly inputs used in the manufacture of resin and countervailing duty had been paid on 3 February 1986. Credit on such inputs was otherwise available under Rule 57A, and the transitional scheme under Rule 57H also covered duty-paid inputs in stock as on 1 March 1986. Where two constructions were possible, the interpretation favourable to the assessee was adopted.

Conclusion: MODVAT credit was admissible on the countervailing duty paid on the chemicals, and the assessee's claim succeeded.

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