Reversal of ineligible Modvat credit does not equal duty payment; a second cash demand for the same amount is unjustified.

A debit made only to reverse ineligible Modvat credit on inputs used in exempt final products does not amount to payment of duty. Rule 57C barred credit where the final product was exempt, and the available RG 23A Part II balance, once disallowed for ineligible use, was merely foregone credit rather than discharge of an independent duty liability. Because the inputs were not cleared as such and were fully consumed in manufacture, the department could not insist on a second cash payment or personal ledger debit for the same amount. The stated conclusion is that further demand was unjustified.

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Issues: Whether the amount debited from the Modvat credit account could be treated as payment of duty after the final product became exempt, and whether the department could insist on further cash payment or debit to the personal ledger account for the same amount.

Analysis: Rule 57C barred credit of duty paid on inputs used in the manufacture of exempt final products. The available credit in the RG 23A Part II account, when disallowed for ineligible utilisation, was not itself payment of duty. The debit made by the assessee only represented forgoing of inadmissible credit. Since the inputs were not cleared as such and were fully consumed in manufacture, there was no basis to treat the debit entry as discharge of an independent duty liability. Requiring a second payment in cash or through the personal ledger account would amount to insisting on payment of the same amount twice.

Conclusion: The demand for further payment was unjustified and the appeal succeeded in favour of the assessee.

Final Conclusion: The impugned order was set aside because the disallowance of ineligible Modvat credit could not be converted into a fresh duty demand once the credit had already been reversed.

Ratio Decidendi: A debit entry made only to reverse ineligible Modvat credit against inputs used in exempt final products does not constitute payment of duty, and the department cannot require a second cash payment for the same amount.

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