Transitional Modvat credit on previously eligible inputs remained transferable despite later differential duty payment by the supplier.

Inputs that had already qualified for proforma credit were not disqualified merely because the supplier later paid short-levied differential duty. Rule 57H was treated as an exception covering duty credit otherwise allowable under pre-1 March 1986 arrangements, and the later payment of duty did not trigger the departmental bar. Because the claim for additional credit was made in the proforma account before the Modvat declaration, the amount, if correctly credited, would have formed part of the transferable balance. The objection that Rule 57E contained no separate provision for such additional credit was not accepted as decisive, and the disallowance of credit was unsustainable.

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Issues: Entitlement to additional duty credit in respect of inputs on which short levy was later made good, and permissibility of carrying such credit from the proforma credit account to the Modvat account under the transitional Modvat scheme.

Analysis: Rule 57H carved out an exception for inputs in respect of which duty credit was otherwise allowable under a rule or notification before 1 March 1986. The inputs in question had already qualified for proforma credit, and the later payment of differential duty by the supplier did not attract the bar relied upon by the department. The claim for additional credit was made in the proforma account before the declaration under the Modvat scheme, so the amount, had it been correctly credited, would have formed part of the credit balance available for transfer. In these circumstances, the objection based on the absence of a separate provision for additional credit under Rule 57E was not accepted as decisive against the assessee.

Conclusion: The denial of credit was not sustainable, and the assessee was entitled to restoration of the disallowed credit in the Modvat account.

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