Modvat credit limited to duty actually payable on inputs; credit on exempted portion after set-off was inadmissible.

Modvat credit on beta naphthol was confined to the duty actually payable and paid on the input. Where the input had already obtained set-off under Notification No. 432/86, only the reduced duty element remained available for credit under Rule 57A read with Notification No. 177/86. Credit taken on the exempted portion could not be treated as credit of duty paid on inputs and was therefore inadmissible. The Tribunal accordingly upheld denial of Modvat credit.

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Issues: Whether Modvat credit was admissible on beta naphthol when the input had already enjoyed set-off under Notification No. 432/86.

Analysis: The appeal concerned denial of Modvat credit under Rule 57A read with Notification No. 177/86. The Tribunal noted that the input had been cleared after availing set-off under Notification No. 432/86 and that, following the earlier view applied in similar matters, the duty element available for credit was only the duty actually payable after the exemption/set-off. Any credit taken beyond that amount could not be treated as credit of duty paid on inputs and was therefore inadmissible.

Conclusion: The Modvat credit was not admissible and the issue was decided against the assessee.

Final Conclusion: The denial of Modvat credit was upheld and the appeal failed.

Ratio Decidendi: Credit under the Modvat scheme is confined to the duty actually payable and paid on inputs, and where an exemption or set-off reduces that duty, credit cannot be claimed on the exempted portion.

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