Modvat credit restoration after irregular cross-unit use was upheld once duty was debited in the PLA; penalty remained.

Modvat credit taken in a duly declared wet process unit was irregularly utilised in a dry process unit that had neither filed a separate declaration nor maintained separate accounts. Once the misutilisation was identified, the duty amount was debited in the PLA, which regularised the position for the wrong utilisation. On that basis, restoration of the corresponding credit to the wet process unit's Modvat account was upheld, and the appellate tribunal did not interfere with the penalty.

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Issues: Whether Modvat credit availed in the dry process unit without a separate declaration and separate account could be restored in the wet process unit after the duty involved was debited in the PLA, and whether the penalty was liable to be sustained.

Analysis: The credit in question had originally been taken in the wet process unit, which had filed the required declaration and maintained the prescribed Modvat account. The new dry process unit had utilised that credit without filing its own declaration and without maintaining separate accounts, making the utilisation irregular. However, once the wrong utilisation was pointed out, the duty amount was debited in the PLA, thereby correcting the misutilisation. In these circumstances, restoration of the corresponding credit to the Modvat account of the duly declared wet process unit was found to be reasonable, and the departmental objection was not accepted.

Conclusion: The restoration of credit to the wet process unit was upheld and the penalty was not interfered with by the appellate tribunal.

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