Modvat credit on pre-declaration inputs was upheld where stock remained verifiable and unused until acknowledgment.

Modvat credit was considered admissible on inputs received before the filing and acknowledgment of the Rule 57G declaration where the inputs remained in stock, were available for verification, and were first issued for manufacture only on the date of acknowledgment. Rule 57H was treated as covering both inputs lying in stock or received after declaration, and inputs already used in manufacture but cleared on or after the relevant date, subject to no prior credit having been taken under another rule or notification. The beneficial nature of the Modvat scheme, the short time gap, and the absence of mala fides supported admissibility, and the demand was unsustainable.

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Issues: Whether Modvat credit was admissible on inputs received before filing and acknowledgment of the declaration under Rule 57G of the Central Excise Rules, in the facts where the inputs remained available for verification and were not used before acknowledgment.

Analysis: Rule 57H was treated as having two limbs, one covering inputs lying in stock or received after filing the declaration and the other covering inputs already used in manufacture but cleared on or after the relevant date, provided no credit had been taken under any other rule or notification. Although credit had been taken before filing the declaration and no formal intimation under Rule 57H had been made, the inputs were shown in the records to have remained in stock and were first issued for manufacture only on the date of acknowledgment of the declaration. The decision also relied on the proximity between receipt and declaration, the absence of mala fides, and the beneficial nature of the Modvat scheme.

Conclusion: Modvat credit was held admissible and the demand was not sustainable.

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