Notional Modvat credit for SSI inputs in stock cannot be confined to actual duty paid under the scheme.

Rule 57B was treated as a deliberate departure from the ordinary Modvat principle that credit is confined to the actual duty paid on inputs. Read with Rule 57H, which permits credit on inputs already in stock when the declaration is filed, the provision was construed to allow higher notional credit on goods sourced from an SSI unit. The analysis held that small scale units should not be placed at a disadvantage merely because their goods attracted concessional duty, and no statutory language justified restricting credit to actual duty paid. The higher notional credit was therefore available, and the assessee's position was accepted with consequential relief.

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Issues: Whether, while allowing Modvat credit on inputs lying in stock on the date of filing the declaration under Rule 57H, the credit was to be confined to the actual duty paid on goods from an SSI unit or could extend to the higher notional credit contemplated under Rule 57B.

Analysis: Rule 57B was treated as a deliberate departure from the ordinary principle that Modvat credit is limited to the actual duty paid on inputs. The provision was read as intended to prevent small scale units, which enjoyed concessional duty, from being placed at a disadvantage in the Modvat scheme. The inputs were already in stock before the declaration, and Rule 57H was meant to permit credit on such stock. A composite reading of the rules showed no justification for denying the higher notional credit merely because the goods originated from an SSI unit, especially when full credit would have been available for inputs from non-SSI units.

Conclusion: The restriction of Modvat credit to the actual duty paid was unsustainable, and the higher notional credit under Rule 57B was held to be available. The issue was decided in favour of the assessee.

Final Conclusion: The appellate order was set aside and the assessee succeeded with consequential relief.

Ratio Decidendi: Where the scheme of Modvat credit and the provisions governing stock inputs are read together, a beneficial departure expressly created for small scale units cannot be denied by confining credit only to actual duty paid, if the statutory language does not impose such a restriction.

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