Modvat input removals under pre-amendment Rule 57F(1)(ii) attracted duty at the clearance rate, not the original credit amount.

Under pre-amendment Rule 57F(1)(ii) of the Central Excise Rules, inputs removed as such from the factory were chargeable to excise duty at the rate in force on the date of clearance, as if they had been manufactured in the factory. The proviso only ensured that the duty paid would not be less than the Modvat credit allowed under Rule 57A. The later insertion of Rule 57F(1A) by Notification No. 4/92-C.E. clarified a separate treatment for restricted-credit inputs and indicated that the earlier rule did not limit duty to the amount of credit originally taken. On that basis, duty was payable at the clearance-rate rather than the original credit amount.

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Issues: Whether, prior to the 1 March 1992 amendment, inputs cleared as such from the factory under Rule 57F(1)(ii) of the Central Excise Rules, 1944 were liable to duty at the same rate at which Modvat credit had been taken, or at the rate prevalent on the date of clearance.

Analysis: Rule 57F(1)(ii), as it stood during the relevant period, permitted removal of inputs from the factory for home consumption on payment of appropriate duty of excise as if the inputs had been manufactured in the factory, and its proviso only ensured that the duty paid would not be less than the credit allowed under Rule 57A. The subsequent insertion of sub-rule (1A) by Notification No. 4/92-C.E. made explicit that restricted-credit inputs could be removed on payment of duty equivalent to the credit availed, showing that the earlier position was different. Applying the pre-amendment rule, the governing rate was the rate in force on the date of removal, not the concessional rate at which the inputs had originally been received.

Conclusion: The duty demand was sustainable and the assessee was liable to pay duty at the rate prevalent on the date of clearance, not merely the amount of Modvat credit originally taken.

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