Transitional Modvat credit under Rule 57H depends on receipt date of inputs, with later restrictive notifications not reducing eligible credit.

Transitional Modvat credit under Rule 57H turned on the date inputs were received and placed in stock before acknowledgment of the declaration, not on the later date of claiming credit. The majority treated Notification No. 149/87-C.E. as a prospective restriction and held that a beneficial credit scheme should be construed in favour of the assessee, so inputs received before the restriction could qualify for full duty-paid credit. A dissenting view applied the rate prevailing when transitional credit became claimable and would have confined credit to the restricted rate.

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Issues: Whether modvat credit on inputs received before the transitional application but lying in stock on the date of acknowledgment was admissible at the full duty paid amount or was confined to the restricted rate of Rs. 800 per metric tonne.

Analysis: Rule 57G governed credit on inputs received after the dated acknowledgment of the declaration, while Rule 57H enabled transitional credit for inputs already received and lying in stock before acknowledgment. The restriction introduced by Notification No. 149/87-C.E. operated prospectively during its stated period and was directed to inputs used in the manufacture of final products. The majority held that the relevant factor was the date on which the inputs were received and became eligible for transitional treatment under Rule 57H, not the later date of filing of the declaration or the subsequent application for transitional credit. Since the inputs had been received before the restrictive notification and the rule operated as a beneficial scheme, the ambiguity had to be resolved in favour of the assessee.

Conclusion: The assessees were entitled to modvat credit at the full duty paid amount without being confined to the restricted rate of Rs. 800 per metric tonne.

Final Conclusion: Transitional modvat credit could not be curtailed by a later-received restriction where the inputs had already been received before the restrictive notification and were governed by the beneficial credit scheme.

Ratio Decidendi: For transitional credit under Rule 57H, the relevant date for determining the admissible credit is the date of receipt of the inputs, and a later prospective restriction cannot reduce the credit on inputs received before that restriction came into force.

Dissenting Opinion: P.C. Jain, Member (T), took the view that the applicable rate was the one in force when the assessee became entitled to claim transitional credit under Rule 57H and therefore upheld the restricted credit rate.

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