Limitation and Modvat credit depend on notice allegations and proof of duty payment on inputs.

Limitation for excise demands depends on the allegations in the show cause notice; absent wilful misstatement, collusion or suppression, the normal six-month period applies and any earlier demand is barred. Modvat credit on inputs is admissible only where duty payment and the notification conditions are proved on the record: credit on steel strips and steel wires was denied for want of evidence of actual duty payment, while credit on PVC resin, PVC compound and copper wires was allowed because the supporting duty-paying documents and applicable notification requirements were satisfied. The commentary also notes that denial cannot rest on a ground not stated in the notice.

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Issues: (i) whether the demand for the earlier period was barred by limitation in the absence of allegations of wilful misstatement, collusion or suppression; (ii) whether Modvat credit on steel strips and steel wires was admissible for the balance period; (iii) whether credit on PVC resin and PVC compound was admissible under the relevant exemption and Modvat notification; and (iv) whether credit on copper wires was admissible.

Issue (i): whether the demand for the earlier period was barred by limitation in the absence of allegations of wilful misstatement, collusion or suppression.

Analysis: The show cause notice contained no allegation of wilful misstatement, collusion or suppression, and it was issued by the Superintendent of Central Excise. In such circumstances, the normal period of limitation applied, and the demand for the period beyond six months could not be sustained.

Conclusion: The demand for the period from March to August 1986 was barred by limitation.

Issue (ii): whether Modvat credit on steel strips and steel wires was admissible for the balance period.

Analysis: For the balance period, the inputs were purchased from a manufacturer on the basis of bills and invoices. Since the assessees had taken credit on the strength of manufacturers' invoices and the goods were not shown to have been purchased from the open market, proof of actual duty payment on those inputs was required. In the absence of such evidence, credit could not be allowed for that segment.

Conclusion: Modvat credit on steel strips and steel wires to the extent of Rs. 2,739.56 was not admissible.

Issue (iii): whether credit on PVC resin and PVC compound was admissible under the relevant exemption and Modvat notification.

Analysis: The PVC resin and PVC compound were supported by manufacturers' duty-paying documents and subsidiary certificates showing duty payment on the resin used in manufacture. The denial of credit rested on a ground not alleged in the show cause notice, and the adjudicating authority could not sustain denial on a different footing. The inputs satisfied the conditions for credit under the relevant notification and Rule 57A scheme.

Conclusion: Credit on PVC resin and PVC compound was correctly availed and was admissible.

Issue (iv): whether credit on copper wires was admissible.

Analysis: Copper and articles thereof were subjected to duty at two stages, and the cited precedent recognised entitlement to Modvat credit of the relevant duties paid at both stages on copper inputs used in manufacture. The same reasoning applied on the facts before the Tribunal.

Conclusion: Credit on copper wires was admissible.

Final Conclusion: The demand survived only to the limited extent of Rs. 2,739.56 relating to steel strips and steel wires, while the remainder of the demand was set aside.

Ratio Decidendi: Limitation and denial of Modvat credit must be tested on the allegations in the show cause notice and the evidence supporting duty payment on inputs, and credit cannot be refused on a ground not put to the assessee or where the statutory conditions for credit are otherwise satisfied.

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