Transfer of unutilised proforma credit allowed after departmental reclassification made earlier Modvat compliance impossible.

Where goods were initially outside the Modvat scheme and the assessee correctly availed proforma credit under Rule 56A, a later departmental reclassification bringing them within a Modvat-covered chapter could not defeat transfer of the unutilised balance from RG 23 to RG 23A. The unamended Rule 57H(3) was not to be applied so rigidly as to deny the benefit when earlier compliance was impossible because eligibility arose only after the Department changed the classification. The principle that the law does not compel the impossible supported allowing the transfer of proforma credit.

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Issues: Whether the assessee was entitled to transfer of unutilised proforma credit under Rule 57H(3) when it became eligible for Modvat credit only after departmental reclassification of the goods.

Analysis: The goods were initially under a classification not covered by Modvat, so the assessee lawfully availed proforma credit under Rule 56A. When the Department later reclassified the goods into a Modvat-covered chapter, the assessee became entitled to Modvat credit and sought transfer of the balance lying in RG 23 to RG 23A. The restriction in the unamended Rule 57H(3) could not be applied so rigidly as to penalise the assessee for a change brought about by departmental action. Applying the principle that the law does not compel the impossible, the Tribunal held that the assessee should not be disadvantaged merely because it could not have entered the Modvat scheme from the earlier date.

Conclusion: The assessee was entitled to the transfer of the unutilised proforma credit, and the appeal was allowed.

Ratio Decidendi: Where an assessee becomes eligible for Modvat only after a departmental reclassification, the benefit of transfer of unutilised proforma credit cannot be denied merely because the original cut-off date in the unamended rule had passed, if compliance from that earlier date was impossible.

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