Modvat credit remains available for a declared dutiable final product despite omission of dutiable intermediates from declaration.

Modvat credit was not extinguished merely because dutiable intermediate goods were omitted from the declaration as final products, where the inputs were used in the declared dutiable final product. The omission was treated as a technical issue affecting only the mode of duty adjustment between RG 23A and PLA, not as a ground for total reversal of credit. The extended period of limitation was unavailable because the non-declaration was found bona fide, with no wilful suppression, misstatement, or intent to evade. On that basis, the connected penalty and confiscation were also unsustainable.

---

---

Issues: (i) whether Modvat credit available on inputs used in declared final products could be denied merely because certain intermediate goods cleared on duty were not shown as final products in the declaration; (ii) whether the demand could validly invoke the extended period and sustain penalty and confiscation for such non-declaration.

Issue (i): Whether Modvat credit available on inputs used in declared final products could be denied merely because certain intermediate goods cleared on duty were not shown as final products in the declaration?

Analysis: The declared final product was motor vehicle, and the inputs admittedly went into its manufacture. Though I.C. engines and motor vehicle parts were not declared as final products, they were themselves dutiable and covered by the Modvat scheme. The denial of credit for their clearance could at most require payment through PLA for those clearances, but the same credit would remain available for payment of duty on the declared final product. The dispute therefore was one of adjustment between RG 23A and PLA and did not result in extinction of the credit, unlike a case involving exempted final products under Rule 57C.

Conclusion: The credit could not be treated as extinguished and remained available for utilisation towards duty on motor vehicles; the objection was only technical and did not justify total reversal.

Issue (ii): Whether the demand could validly invoke the extended period and sustain penalty and confiscation for such non-declaration?

Analysis: The omission to declare I.C. engines and motor vehicle parts as final products was held to be bona fide, since the facts showed no real revenue gain and the department was aware of the utilisation pattern from returns filed. In these circumstances, the omission did not amount to wilful misstatement, suppression of facts, or deliberate evasion. Once the demand itself was time-barred on the facts, the connected penal consequences and confiscation could not survive.

Conclusion: The extended period was not available and the penalty and confiscation were unsustainable.

Final Conclusion: The appeal succeeded with consequential relief, and the order reversing credit, imposing penalty, and directing confiscation was set aside.

Ratio Decidendi: Where inputs are used in a declared dutiable final product, Modvat credit is not extinguished merely because some dutiable intermediate goods were not declared as final products; in the absence of wilful suppression or intent to evade, the extended period, penalty, and confiscation cannot be sustained.

---