Modvat credit recovery requires a proper show cause notice; an RT-12 remark alone cannot justify reversal.

Modvat credit could not be denied or recovered merely on the basis of an RT-12 endorsement recording alleged excess credit, because such an entry was only an internal remark and not a valid show cause notice. Recovery of duty or reversal of credit had to follow the prescribed excise procedure, and the absence of proper notice made any later dispute about insertion of the duty rate legally irrelevant. The Department's attempt to sustain recovery without issuing the requisite notice was rejected, and the assessee's credit was sustained.

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Issues: Whether Modvat credit could be disallowed or recovered on the basis of an RT-12 remark and an alleged subsequent insertion of the duty rate, in the absence of a show cause notice under the governing excise procedure.

Analysis: The RT-12 endorsement recording alleged excess Modvat credit was treated as only an internal remark and not as a show cause notice. The legal consequence of reversal or recovery of credit could not follow merely from such a remark or from an appeal filed by the Department. Recovery of duty or reversal of credit required notice under the applicable statutory procedure, and in the absence of such notice the proposed verification of the later insertion of the duty rate became legally irrelevant. The Tribunal also noted that the Department's attempt to sustain recovery without issuing the requisite notice could not be accepted.

Conclusion: Modvat credit could not be denied or recovered in the absence of a proper show cause notice, and the assessee's credit was sustained.

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