Modvat credit on reclassified inputs remained admissible when duty was paid, following the TELCO principle.

Reclassification of an input from Chapter 27 to Chapter 38 did not defeat the user manufacturer's entitlement to Modvat credit under Rule 57A where duty on the input had been paid by the excise officer. The analysis followed the Larger Bench ruling in TELCO, which recognised that when the same input is reclassified, the consequential credit should be extended to the user manufacturer in identical circumstances. On that basis, Modvat credit was held admissible and denial of credit was not sustainable.

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Issues: Whether Modvat credit was admissible where the input, initially classified under Chapter 27, was later reclassified under Chapter 38 and duty payment by the manufacturer of inputs was by the excise officer.

Analysis: The dispute turned on the effect of reclassification of the input on the user manufacturer's entitlement to credit under Rule 57A. The matter was treated as governed by the Larger Bench ruling in TELCO, which had held that when the same input is reclassified, the consequential duty credit is to be extended to the user manufacturer in identical circumstances.

Conclusion: Modvat credit was admissible and the denial of credit was not sustainable.

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