Modvat credit entitlement survives later duty payment on inputs where the additional duty was actually borne by the goods.

Under the Modvat scheme, subsequent payment of differential duty on inputs does not bar corresponding credit where the inputs have in fact borne that duty. Rule 57A was treated as the substantive enabling provision, while Rule 57E was regarded as an adjustment mechanism that could not curtail the basic entitlement to credit. As the supplier had paid the additional duty on the same inputs, denial of corresponding additional credit was not justified, and the assessee was entitled to take that credit.

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Issues: Whether additional Modvat credit was admissible where the supplier of inputs paid differential duty after the original clearance, and whether Rule 57E could be invoked to deny such credit.

Analysis: The entitlement to credit was examined in the context of Rule 57A as the substantive enabling provision under the Modvat scheme and Rule 57E as the provision dealing with adjustment of credit when duty paid on inputs is varied subsequently. The Tribunal accepted that subsequent payment of differential duty on the same inputs does not take the case outside the Modvat scheme merely because the higher duty was not paid at the time of original clearance. Rule 57E, especially after amendment, was treated as clarificatory and not as restricting the basic right to credit under Rule 57A. Since the inputs had in fact suffered additional duty, denial of corresponding credit was not justified.

Conclusion: The appellant was entitled to take additional Modvat credit for the differential duty paid by the supplier, and invocation of Rule 57E to reverse such credit was not sustainable.

Final Conclusion: The appeal succeeded and the assessee obtained the benefit of credit on the additional duty paid on the inputs.

Ratio Decidendi: Under the Modvat scheme, subsequent payment of differential duty on inputs does not bar corresponding credit where the inputs have actually borne that duty, and the adjustment provision cannot be used to curtail the substantive entitlement to credit.

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