Approved excise procedure and Modvat credit made retrospective duty demand on fitted jeep bodies unsustainable.

Duty on FRP bodies fitted on jeep chassis could not be demanded retrospectively where the movement of chassis to the body-builder and return after fitment had been specifically approved by excise authorities and that procedure had already attained finality. A later departure from the approved process could operate only prospectively, not as a basis for back-dated duty demand. The demand was also treated as revenue neutral because any duty paid at the intermediate stage would have been available as Modvat credit. The duty demand was therefore unsustainable and was set aside.

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Issues: Whether duty could be demanded on FRP bodies manufactured and fitted on jeep chassis when the movement of chassis and bodies had been approved by the Central Excise authorities under the applicable procedure and the intermediate duty would, in any event, have been available as Modvat credit.

Analysis: The procedure adopted for movement of chassis to the body-builder and return of the vehicles after fitment of bodies had been specifically approved by the Central Excise authorities and had been reaffirmed in earlier proceedings that had attained finality. A later departure from that approved procedure could not be used retrospectively to demand duty. The arrangement was also revenue neutral because duty paid at intermediate stages would have been available as Modvat credit to the concerned manufacturers. The changes in such a procedure, if any, had to operate prospectively.

Conclusion: The duty demand on the FRP bodies was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: Where a movement and processing arrangement has been specifically approved by the excise authorities and has attained finality, duty cannot be demanded retrospectively on the basis of a later departure from that approved procedure, especially where the duty effect is revenue neutral through Modvat credit.

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