Modvat credit under Rule 57A is based on duty actually paid on inputs, not a notional lower rate.

Modvat credit under Rule 57A is stated to be linked to the duty actually paid on inputs as shown in the duty-paying documents, not to a notional or concessional effective rate that might otherwise have been leviable. The note explains that where inputs were cleared on payment of duty and the credit claimed matched that duty, the credit scheme permits credit of the actual excise duty paid for use in or in relation to manufacture. It further records that prior Tribunal precedent and a departmental circular supported this position, and that the restriction of credit to a lower rate was incorrect.

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Issues: Whether Modvat credit under Rule 57A was to be restricted to the effective duty leviable on the inputs, or whether credit was admissible to the extent of duty actually paid and reflected in the duty-paying documents.

Analysis: Rule 57A permits credit of the duty of excise paid on inputs used in or in relation to the manufacture of final products. The inputs in question had been cleared on payment of duty at 225% ad valorem, and the credit claimed corresponded to that amount. Credit under the scheme is therefore linked to the duty actually paid, not to a notional effective rate that might otherwise have been leviable. Support for this view was also found in prior Tribunal precedent and the departmental circular cited in the order.

Conclusion: Modvat credit could not be curtailed to the concessional rate of duty; the assessee was entitled to credit equal to the duty actually paid. The restriction of credit was incorrect and the appeal succeeded.

Ratio Decidendi: Under Rule 57A, Modvat credit is admissible on the basis of the duty actually paid on the inputs as evidenced by the duty-paying documents, and the authorities cannot limit such credit by reference to the duty that ought to have been levied at an effective rate.

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