Common Modvat credit account permitted where rules did not require input-wise segregation; credit denial and penalties were unsustainable.

Modvat credit could not be denied merely because the Revenue alleged that particular inputs were not used in the exact final products declared, where RG 23A Part II was lawfully maintained as a common credit account for multiple inputs. Because the Rules did not require input-wise segregation of utilisation in the manner alleged, the common account and monthly returns did not show wrongful or illegal use of credit. On that basis, denial of credit, duty demands, and penalties were unsustainable, and the assessee was entitled to consequential relief.

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Issues: Whether Modvat credit could be denied and duty and penalty confirmed on the ground that inputs were not utilised in the exact final products declared, when RG 23A Part II maintained a common credit account for all inputs.

Analysis: The credit account under RG 23A Part II was maintained commonly for all inputs, while RG 23A Part I remained input-wise. On that footing, input-wise segregation of utilisation was not possible. The credit account was also available to the department through monthly returns. In the absence of any requirement shown under the Rules that credit had to be maintained or utilised input-wise in the manner alleged by the Revenue, the utilisation could not be treated as wrongful or illegal. The demand and the penalties were therefore unsustainable.

Conclusion: The denial of Modvat credit, the duty demands, and the penalties were set aside in favour of the assessee.

Final Conclusion: The appeals succeeded and consequential relief, including refund of the amount pre-deposited, followed.

Ratio Decidendi: Where the credit account is lawfully maintained as a common account for multiple inputs and the rules do not require input-wise segregation of utilisation, credit cannot be denied merely because the department alleges mismatch between a declared input and the final product.

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