Transitional MODVAT credit extends to earlier stock where inputs were received before declaration and duty proof was available.

The expression "immediately before" in Rule 57H(1) of the Central Excise Rules, 1944 was read in context and not as a narrow reference only to the immediately preceding month. Transitional MODVAT credit could not be denied merely because inputs were received earlier, so long as they were received before the dated acknowledgement of the declaration, were in stock, and evidence of duty payment was available. Monthly RT-12 finalisation under Rule 173I did not control entitlement under Rule 57H. The interpretation adopted was that which furthered the object of the MODVAT scheme, and the denial of credit on this basis was held unsustainable.

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Issues: Whether the expression "immediately before" in Rule 57H(1) of the Central Excise Rules, 1944 should be construed narrowly so as to confine transitional MODVAT credit only to inputs received in the immediately preceding month, and whether credit could be denied for inputs received earlier but lying in stock before the declaration was filed.

Analysis: The expression "immediately before" was not defined in the rule and had to be read in the context of the rule as a whole. The monthly finalisation of RT-12 assessments under Rule 173I could not control the scope of MODVAT entitlement. What mattered under Rule 57H was that the inputs were received before the dated acknowledgement of the declaration, were lying in stock, and the required evidence of duty payment was available. The interpretation had to advance the legislative object of the MODVAT scheme and avoid an incongruous result where earlier stock would be denied credit while later inputs could qualify.

Conclusion: The inputs received in January 1987 were also covered by Rule 57H(1), and denial of MODVAT credit on that basis was unsustainable.

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