MODVAT credit cannot be reversed absent a real variation in duty payable on inputs; belated differential payment is insufficient.

Rule 57E of the Central Excise Rules applied only where there was a real subsequent variation in the duty payable on inputs. Where the supplier later paid differential duty because of an earlier short payment, but the inputs had already suffered duty at the correct rate in law, there was no variation within Rule 57E. The amendment in Notification No. 117/87 did not alter that position on the facts. MODVAT credit under Rule 57A therefore could not be denied or reversed, and the assessee remained entitled to the claimed credit.

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Issues: Whether MODVAT credit could be denied or reversed under Rule 57E of the Central Excise Rules when the supplier of inputs subsequently paid the differential duty due to an error in the original duty payment, though the inputs had already suffered duty at the correct rate under law.

Analysis: Rule 57E applies where duty paid on inputs is varied subsequently so as to require adjustment of credit. The governing principle applied was that there must be a real variation in the duty payable on the inputs by operation of law or otherwise. Where the rate of duty remained the same and the supplier merely corrected an earlier short payment by paying the differential amount, there was no variation in the duty payable on the inputs within the meaning of Rule 57E. The amendment made by Notification No. 117/87 did not govern the facts so as to justify reversal of credit in the present case.

Conclusion: Rule 57E was held inapplicable, and denial or reversal of the MODVAT credit was not sustainable. The credit was allowable under Rule 57A.

Final Conclusion: The assessee was entitled to the MODVAT credit claimed, and the order denying the credit was set aside with consequential relief.

Ratio Decidendi: Rule 57E applies only where there is a subsequent variation in the duty payable on the inputs; mere belated payment of differential duty for an originally underpaid but otherwise correctly classifiable input does not justify reversal of MODVAT credit.

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