MODVAT credit on captively manufactured duty-paid inputs was available before the amendment, as the later clarification was treated as clarificatory.

Captively manufactured and captively consumed duty-paid inputs were eligible for MODVAT credit where they were used in or in relation to the manufacture of the final product and were duly declared and accepted under the scheme. The later amendment to the Explanation was treated as clarificatory, because a contrary view would wrongly let the Explanation override the substantive rule and create an irrational distinction between duty-paid inputs bought from outside and those manufactured within the factory. Credit was therefore available for the period before the amendment, and the assessee was entitled to retain it.

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Issues: Whether captively manufactured and captively consumed inputs, duty paid and declared under the MODVAT scheme, were eligible for MODVAT credit before the amendment introduced by Notification No. 197/86 dated 14.3.1986.

Analysis: Rule 57A governed MODVAT credit on duty paid goods used in or in relation to the manufacture of the final product. The inputs in question were admittedly used for the manufacture of the final product, were duly declared as inputs, accepted by the Department, and duty had been paid on them. The later amendment to the Explanation was treated as clarificatory in nature, because denying credit merely on the ground that the inputs were captively manufactured would make the Explanation override the substantive rule and would produce an incongruous distinction between duty-paid inputs obtained from outside and duty-paid inputs manufactured within the factory.

Conclusion: Captively manufactured and captively consumed inputs were eligible for MODVAT credit even for the period prior to the amendment, and the assessee was entitled to retain the credit.

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