Constructive balance for transitional MODVAT credit applies when disputed proforma input credit is later allowed

Where proforma credit entitlement on disputed inputs was finally determined in favour of the assessee, the credit had to be treated as constructively lying in balance before filing the MODVAT declaration. The departmental objection that no balance existed was rejected because the credit would have been available but for the pending dispute. Accordingly, transitional credit under Rule 57H(3) was available and transfer of the credit to the MODVAT account was permissible.

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Issues: Whether credit relating to inputs covered by a proforma credit dispute, later resolved in favour of the assessee, could be treated as lying in balance immediately before filing of the MODVAT declaration and transferred under Rule 57H(3).

Analysis: The assessee had been using the proforma credit procedure before switching over to MODVAT. The eligibility dispute concerning certain inputs was finally decided in the assessee's favour by the Assistant Collector. Once that order was passed, the benefit had to be given effect to either in the proforma account or in PLA. The objection that no credit was lying in balance before declaration was rejected because the credit would have been available but for the departmental objection. As the dispute was resolved only later, the credit relating to inputs received under the proforma scheme had to be regarded as lying in balance immediately before filing the declaration.

Conclusion: Rule 57H(3) was available to the assessee, and the transfer of credit to the MODVAT account was permissible.

Ratio Decidendi: Where a proforma credit entitlement is finally determined in favour of the assessee after a dispute, the credit is to be treated as constructively lying in balance for the purpose of transitional MODVAT credit under Rule 57H(3).

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