Modvat credit and penalty fail where the return is revised to cure depreciation error and notice cites a different penalty provision.

Modvat credit was discussed in the context of Rule 57R(5), which barred simultaneous depreciation on the duty element in the income-tax return. The text notes that where the assessee itself detected the mistake and filed a revised return, the irregularity was treated as regularised and the credit position could not be questioned on the footing that the defect continued. It also records that penalty was unsustainable because the assessee had not been put on notice for the specific penalty provision ultimately invoked, and the show-cause notice referred to different provisions. The impugned order was therefore set aside with consequential relief.

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Issues: Whether the denial of Modvat credit and the consequential penalty were sustainable when the assessee had corrected the depreciation claim by filing a revised income-tax return and was not put on notice for the specific penalty invoked.

Analysis: The assessee had taken capital goods credit and had also claimed depreciation on the duty component in the income-tax return, which attracted the prohibition under Rule 57R(5) of the Central Excise Rules. However, the mistake was detected by the assessee itself and was rectified by filing a revised return, thereby regularising the position. In these circumstances, the credit could not be questioned on the footing that the irregularity continued unabated. The penalty also could not be sustained because the assessee had not been put on notice for penalty under the provision finally invoked, and the proposal in the show-cause notice was under different provisions.

Conclusion: The denial of credit and the penalty were not sustainable; the impugned order was set aside and the appeal was allowed with consequential relief.

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