Transitional MODVAT credit preserved where inputs were earlier eligible for proforma credit despite pre-31-1-1986 duty payment.

Rule 57H provided transitional MODVAT credit on inputs received in the relevant period, and Rule 57H(2) limited that relief where duty had been paid before 31-1-1986. The exclusion in Rule 57H(2), however, preserved credit if the inputs were eligible for credit under any rule or notification before 1-3-1986. Because the inputs were already eligible for proforma credit under Rule 56A, the bar in Rule 57H(2) did not apply. Transitional MODVAT credit was therefore available, and denial of the credit was unjustified.

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Issues: Whether the appellants were entitled to MODVAT credit under Rule 57H of the Central Excise Rules when the inputs were received during the transitional period and had earlier been eligible for proforma credit under Rule 56A of the Central Excise Rules, notwithstanding that duty on the inputs had been paid before 31-1-1986.

Analysis: Rule 57H(1) provides a general transitional facility for credit on goods received during the relevant period, while Rule 57H(2) qualifies that facility. The bar under Rule 57H(2) applies where duty was paid before 31-1-1986, but the exclusion carved out by that sub-rule preserves credit where the inputs were eligible for credit under any rule or notification prior to 1-3-1986. The inputs in question were found to have been eligible for proforma credit under Rule 56A, and that position was not disputed. Once that eligibility is established, the exclusion clause operates and the bar in Rule 57H(2) is not attracted.

Conclusion: The appellants were entitled to the credit and its denial was not justified.

Final Conclusion: The order refusing MODVAT credit was set aside and the appeal succeeded on the basis that prior eligibility for proforma credit brought the inputs within the exclusion to Rule 57H(2).

Ratio Decidendi: Where inputs were eligible for credit under an earlier rule or notification before 1-3-1986, the exclusion clause in Rule 57H(2) prevents denial of transitional MODVAT credit merely because duty had been paid before 31-1-1986.

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