Modvat credit limited to declared final products; wrongly utilised credit must be restored unless the output is exempt or nil-rated.

Modvat credit under the then applicable scheme was confined to payment of duty on a declared final product under the filed declaration. Credit used for bare copper wire was not available for enamelled copper wire, since a general statement in the classification list could not replace the specific declaration required by the rules. The duty demand on utilisation of credit for the undeclared product was sustained. However, once such credit was disallowed and duty was required to be paid from the PLA or in cash, the wrongly utilised credit had to be restored to the RG 23A Part II account. Restoration could be denied only where the final product was wholly exempt or nil-rated.

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Issues: (i) Whether Modvat credit could be utilised for payment of duty on a final product that was not declared in the Modvat declaration. (ii) Whether the credit wrongly utilised and required to be paid from the PLA or in cash was liable to be restored to the RG 23A Part II account.

Issue (i): Whether Modvat credit could be utilised for payment of duty on a final product that was not declared in the Modvat declaration.

Analysis: The utilisation of credit under Rule 57F was confined to payment of duty on a declared final product in accordance with the declaration filed under Rule 57G. The product on which credit was actually used, bare copper wire, was different from the declared final product, enamelled copper wire. The description in the classification list was only a general statement that Modvat was being availed and could not substitute the required declaration for the specific product.

Conclusion: The demand of duty was upheld and the objection to utilisation of Modvat credit for the undeclared final product was rejected.

Issue (ii): Whether the credit wrongly utilised and required to be paid from the PLA or in cash was liable to be restored to the RG 23A Part II account.

Analysis: Once the utilisation of credit is disallowed and duty is directed to be paid from the PLA or in cash, the wrongly utilised credit has to be restored. There is no one-to-one correlation between input and final product for this purpose, and restoration can be denied only where the final product is wholly exempt or chargeable to nil rate of duty under Rule 57C.

Conclusion: The assessee was entitled to restoration of the Modvat credit to the RG 23A Part II account.

Final Conclusion: The demand of duty was sustained, but the denial of restoration of the utilised credit was set aside, resulting in partial relief to the assessee.

Ratio Decidendi: Modvat credit under the then applicable scheme can be utilised only for a declared final product, but credit wrongly utilised must be restored when duty is paid back, unless the final product is wholly exempt or nil-rated.

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