Modvat credit reversal barred by limitation, and provisional assessment could not support recovery without finalisation.

Limitation for reversal of wrongly availed Modvat credit under Rule 57-I runs from the date the credit is taken; where show cause notices are issued more than six months later, the demand is time-barred. Recovery also cannot be sustained on a provisional assessment basis unless the assessment has been finalised and the liability has crystallised; a notice that does not proceed on finalisation cannot support demand on that footing. The impugned orders were set aside, and the assessees obtained consequential relief.

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Issues: (i) Whether the demand to reverse Modvat credit was barred by limitation under Rule 57-I; (ii) Whether the demand could be sustained on the basis of provisional assessment without finalisation of assessment.

Issue (i): Whether the demand to reverse Modvat credit was barred by limitation under Rule 57-I.

Analysis: The limitation under Rule 57-I ran from the date on which the credit was taken. The credit had been taken more than six months before the show cause notices were issued, so the notices were beyond the prescribed period. The demand notice did not invoke any other valid basis to avoid the limitation bar.

Conclusion: The demand was barred by limitation and this issue was decided in favour of the assessee.

Issue (ii): Whether the demand could be sustained on the basis of provisional assessment without finalisation of assessment.

Analysis: A demand could not be made unless the liability had crystallised through final assessment. The notices did not state that the assessments were being finalised, and the department could not justify recovery by relying on provisional assessment when the notice itself did not proceed on that footing.

Conclusion: The demand based on provisional assessment was unsustainable and this issue was decided in favour of the assessee.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief to the assessees.

Ratio Decidendi: For reversal of wrongly availed Modvat credit, limitation under Rule 57-I is computed from the date of taking the credit, and recovery cannot be enforced on a provisional basis unless the assessment has been finalised and the liability has crystallised.

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