Modvat credit on capital goods requires plain textual coverage; no retrospective benefit absent express provision.

Modvat credit on capital goods used to manufacture goods under Heading 5202 was not available for the period before 21-10-1994, because Notification No. 60/94-C.E. (N.T.) amended Rule 57Q only from that date and did not operate retrospectively. The appellate order allowing credit for the earlier period was therefore unsustainable, and the original denial of credit was restored. On penalty, the surrounding uncertainty on eligibility and excisability justified a lenient view, so the penalty for wrongly taking credit was reduced substantially.

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Issues: (i) whether Modvat credit on capital goods used to manufacture goods falling under Heading 5202 was admissible for the period prior to 21-10-1994 under Rule 57Q; (ii) whether the penalty for wrongly taking credit warranted interference.

Issue (i): whether Modvat credit on capital goods used to manufacture goods falling under Heading 5202 was admissible for the period prior to 21-10-1994 under Rule 57Q.

Analysis: Notification No. 60/94-C.E.(N.T.) dated 21-10-1994 removed Headings 5201 and 5202 from the negative list, but nothing in the notification gave it retrospective effect. On a plain reading, the amended coverage under Rule 57Q operated only from 21-10-1994, and there was no basis for allowing credit for the earlier period or for sustaining the 2.5% per quarter approach adopted in the appellate order.

Conclusion: Credit was not admissible prior to 21-10-1994, and the appellate order allowing it was unsustainable.

Issue (ii): whether the penalty for wrongly taking credit warranted interference.

Analysis: At the time credit was taken, there was a bona fide dispute on eligibility, including the excisability of the goods themselves. In the surrounding legal uncertainty, the respondents were entitled to the benefit of doubt, making a lenient view appropriate on penalty.

Conclusion: The penalty was fit to be reduced substantially.

Final Conclusion: The appellate order granting credit for the earlier period was set aside, the original denial of credit was restored, and the penalty was reduced.

Ratio Decidendi: A beneficial exemption or credit notification must be construed on its plain terms, and unless retrospective operation is expressly provided, the benefit cannot be extended to periods before the notification's effective date.

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