Retrospective denial of deemed Modvat credit rejected where later instruction could not override earlier entitlement

An earlier departmental order granting deemed Modvat credit for the relevant period remained applicable, and a later instruction could not be used retrospectively to deny that benefit. Where credit is claimed under a deemed credit arrangement in a market containing both duty-paid and non-duty-paid goods, the Revenue must rebut the claim if it alleges that the goods were clearly recognisable as non-duty-paid. On that basis, denial and reversal of deemed credit were unsustainable, and relief followed for the assessee.

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Issues: Whether deemed Modvat credit was admissible for the period in dispute under the Ministry's earlier order, and whether the burden to disprove the assessee's entitlement lay on the assessee or on the Revenue.

Analysis: The earlier Ministry order dated 7-4-1986 was applicable during the relevant period and expressly covered the inputs in question for deemed credit at the prescribed rate. The later Ministry instruction could not govern a period prior to its issue. On the question of proof, where credit is claimed under a conditional exemption or deemed credit arrangement and the market contains a mixture of duty-paid and non-duty-paid goods, the Revenue must rebut the claim if it alleges that the goods were clearly recognisable as non-duty-paid. The assessee was not required to discharge that burden.

Conclusion: The denial and reversal of deemed Modvat credit were unsustainable, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned orders could not be sustained and the appeal succeeded with consequential relief.

Ratio Decidendi: Where an applicable departmental order grants deemed credit for the relevant period, a later instruction cannot be used to deny that benefit retrospectively, and the burden to disprove a deemed credit claim based on alleged non-duty-paid character of goods lies on the Revenue.

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