MODVAT credit must follow duty shown in the invoice; local authorities cannot reassess input duty to restrict credit.

Under the MODVAT scheme, credit on specified inputs was admissible with reference to the duty shown in the duty paying documents, and the receiving authority could not restrict credit by reassessing the duty as actually payable under Notification No. 177/86-C.E. and Rule 57A. The scheme was treated as a self-contained code: if duty on inputs was short-paid or excess-paid, the remedy lay at the supplier's end through the statutory demand and refund machinery, with adjustment provided by Rule 57E. Accordingly, MODVAT credit was to be taken as reflected in the duty paying documents, and the restriction imposed by local excise authorities was not sustainable.

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Issues: Whether MODVAT credit on inputs was admissible to the extent of the duty shown in the duty paying documents, or whether it could be restricted by the jurisdictional authorities to the duty considered actually payable under Notification No. 177/86-C.E. and Rule 57A.

Analysis: Rule 57A, read with Notification No. 177/86-C.E., allows credit of duty paid on specified inputs used in the manufacture of the final product, subject to compliance with the MODVAT scheme. The scheme operates as a self-contained code and does not authorise the authority having jurisdiction over the assessee's factory to reassess the duty paid on inputs for the purpose of credit. If the duty on the inputs is short-paid or excess-paid, the remedy lies at the supplier's end under the demand and refund provisions, and any necessary adjustment is catered for by Rule 57E. Accordingly, credit is to be taken with reference to the duty shown in the duty paying document under which the goods were received.

Conclusion: The restriction of MODVAT credit to the duty held payable by the local excise authorities was not sustainable, and the assessee was entitled to credit as reflected in the duty paying documents.

Final Conclusion: The appeal succeeded and the assessee obtained consequential relief on the MODVAT credit issue.

Ratio Decidendi: Under the MODVAT scheme, credit is admissible on the duty shown in the duty paying documents for specified inputs, and the receiving authority cannot reassess that duty for the purpose of restricting credit; any correction lies through the statutory demand and refund mechanism at the supplier's end.

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