MODVAT credit on DEPB debit entries fails without actual duty payment, while penalty may be waived under prior favourable precedent.

Mere debit in a DEPB passbook, without actual payment of additional duty, is insufficient to claim MODVAT credit on the strength of the Bill of Entry, as the earlier contrary view was no longer good law after the Larger Bench ruling. Credit was therefore held inadmissible. Penalty, however, was not imposed because the relevant period fell when a favourable Tribunal view for the assessee still existed, so the assessee's conduct was treated as supported by then-prevailing precedent.

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Issues: Whether credit was admissible on the strength of debit entries in the DEPB passbook without actual cash payment of additional duty, and whether penalty was warranted.

Analysis: The earlier view supporting credit on mere debit in the DEPB passbook was held no longer good law in view of the Larger Bench decision which ruled that such debit by itself is insufficient for availing MODVAT credit on the strength of the Bill of Entry. As the relevant period coincided with an earlier Tribunal decision supporting the assessee, the question of penalty was considered in that light.

Conclusion: Credit was held to be inadmissible, in favour of the Revenue. Penalty was not imposed, in favour of the assessee.

Final Conclusion: The Revenue succeeded on the substantive credit issue, but the assessee was granted relief against penalty, resulting in a partial allowance of the Revenue's appeal.

Ratio Decidendi: Mere debit in a DEPB passbook, without actual payment of additional duty, does not by itself make MODVAT credit admissible; penalty may be denied where the assessee acted under a then-prevailing favourable tribunal view.

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