Modvat credit recovery is barred by limitation when notice is not issued within six months of each credit entry.

Modvat credit on inputs became unavailable once the exemption notification made the final products dutiable at nil rate, so credit taken after that date was not legally admissible. Recovery of wrongly availed credit, however, had to comply with Rule 57-I of the Central Excise Rules, 1944, which required a notice within six months from the date each credit was taken. A demand based on the later notice date, rather than the individual credit dates, was therefore time-barred and could not be sustained. The earlier High Court ruling on irrevocability of Modvat credit did not determine the limitation issue or permit recovery beyond the statutory period.

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Issues: Whether Modvat credit taken on inputs became reversible after the exemption notification and whether the departmental demand was barred because the notice was not issued within six months from the date of such credit under the governing rule.

Analysis: The exemption notification made the final products dutiable at nil rate from the relevant date, so credit taken thereafter was not legally available. However, recovery of wrongly taken credit had to be initiated strictly in accordance with Rule 57-I of the Central Excise Rules, 1944, which required notice within six months from the date of such credit. The notice in the case was issued by reference to the later notice date and not by reference to each date on which credit was taken. The earlier High Court ruling on irrevocability of Modvat credit did not decide the limitation question and did not authorise recovery beyond the statutory period.

Conclusion: The credit was not available after the exemption notification, but the departmental demand was time-barred under Rule 57-I and could not be sustained. The assessee succeeded and the department failed.

Ratio Decidendi: Recovery of wrongly availed Modvat credit must be initiated within the statutory limitation computed from the date of such credit, and a demand issued outside that period is unsustainable notwithstanding the underlying ineligibility of the credit.

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