Show cause notice for Modvat credit reversal can be valid in law; factual issue rejected as no independent question of law.

Rule 57-I of the Central Excise Rules, 1944 requires a show cause notice and an opportunity to the assessee before recovery of wrongly taken Modvat credit. Communications that set out the grounds for reversal of credit may be treated as notice in law, and the first issue was therefore held to be a fit question of law for reference. The second proposed issue was rejected because it turned only on factual appreciation and did not raise an independent question of law.

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Issues: Whether the communications dated 21-2-1990 and 27-12-1990 asking reversal of Modvat credit constituted a notice to show cause under Rule 57-I of the Central Excise Rules, 1944, and whether the second proposed question raised a question of law.

Analysis: Rule 57-I specifically contemplates service of a show cause notice before recovery of wrongly taken Modvat credit and requires an opportunity to the assessee before a decision is taken. The communications in question set out the grounds on which reversal of credit was demanded and, on that basis, could be treated as notice in law. The proposed second question concerned only factual appreciation and did not raise an independent question of law.

Conclusion: The first question was held to be a fit question of law for reference, while the second was rejected as a mere question of fact.

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