Modvat credit cannot be denied by reopening a supplier's accepted duty assessment or misapplying the renovation exception.

A recipient authority cannot deny Modvat credit by questioning the duty paid by a supplier whose assessment has already been accepted in the supplier's jurisdiction; any challenge must first be taken against that assessment before the proper authority. The renovation-related proviso to Rule 57T(3) applies only within its limited contractor or job-worker framework for renovation, modernisation or expansion, and does not extend to a principal-to-principal renovator. On these principles, the restriction and partial disallowance of credit could not be sustained, and the assessee's credit entitlement remained intact.

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Issues: (i) whether the Commissioner having jurisdiction over the recipient could deny Modvat credit by questioning the duty payment made by the supplier at another jurisdiction, and (ii) whether the proviso to Rule 57T(3) governed renovation of machinery done by a principal-to-principal renovator so as to limit the credit.

Issue (i): Whether the Commissioner having jurisdiction over the recipient could deny Modvat credit by questioning the duty payment made by the supplier at another jurisdiction.

Analysis: Excise duty is payable on manufacture, and where the supplier's assessment had been accepted by the proper officer, the recipient authority could not sit in appeal over that assessment or treat the duty as wrongly paid without the assessment being set aside by the competent authority. If the department doubted the duty liability at the supplier's end, the proper course was to proceed against that assessment in the supplier's jurisdiction and then make consequential adjustment to credit in accordance with the rules.

Conclusion: The Commissioner at Pune had no jurisdiction to deny the credit on the footing that the duty paid by the supplier ought not to have been paid.

Issue (ii): Whether the proviso to Rule 57T(3) governed renovation of machinery done by a principal-to-principal renovator so as to limit the credit.

Analysis: The proviso to Rule 57T(3) extends to renovation, modernisation and expansion, but it is an exception to the document requirement for capital goods received through a contractor or job worker undertaking such work on behalf of the manufacturer. On the facts, the renovator was not acting as a contractor or job worker for the assessee, but independently on a principal-to-principal basis. The notice had also proceeded on an incorrect reading that the proviso applied only to initial setting up. In any event, the department's objection did not match the case made in the notice.

Conclusion: The proviso did not justify restricting the Modvat credit in the manner adopted by the department.

Final Conclusion: The assessee was entitled to the credit taken, and the order restricting and disallowing part of the credit could not be sustained.

Ratio Decidendi: A recipient authority cannot deny credit by re-opening or disregarding an assessment of duty already accepted in the supplier's jurisdiction, and the renovation-based exception in the credit rule applies only within its limited contractor or job-worker framework.

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