Modvat credit on duty-paid inputs cannot be cut down by ignoring recognised debit entries under the credit scheme.

Modvat credit under Notification No. 177/86 was available at the lesser of Rs. 900 per tonne or the actual duty paid, and the duty-paid character of the input had to be determined from the duty-paying document as a whole. Where the manufacturer discharged duty through recognised debits in RG 23A and RG 23B, the payment could not be confined to one register entry alone. The lower authorities' view that only Rs. 500 per tonne had been paid was factually incorrect, and the notification had to be read harmoniously with the Modvat and money credit scheme. The restriction to Rs. 500 per tonne was therefore unsustainable, and the assessees were entitled to consequential relief.

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Issues: Whether the appellants were entitled to Modvat credit at the notified limit of Rs. 900 per tonne on vanaspati inputs when the duty on the inputs was discharged partly under one register and partly under another, and whether the lower authorities were correct in treating only Rs. 500 per tonne as the duty actually paid.

Analysis: Notification No. 177/86 under Rule 57A restricted credit to Rs. 900 per tonne or the actual duty paid, whichever was less. The duty-paying document showed that the input manufacturer had discharged duty at Rs. 1,500 per tonne, with debits made in RG 23A for Rs. 500 and in RG 23B for Rs. 1,000. The finding that only Rs. 500 had been paid was factually incorrect. The debit in RG 23B constituted a method of duty payment and could not be ignored. The notification had to be read in a harmonious manner with the Modvat and money credit scheme, and the duty-paid character of the input was established from the gate pass itself. The assumption introduced in the appellate order regarding set-off or cash subsidy was unsupported by the show cause notice.

Conclusion: The appellants were entitled to Modvat credit on the basis of duty actually paid as reflected in the duty-paying document, and the restriction to Rs. 500 per tonne was unsustainable.

Final Conclusion: The appeals succeeded and the assessees obtained consequential relief under law.

Ratio Decidendi: Where the duty-paying document establishes payment of excise duty through recognised debits under the relevant scheme, the credit cannot be denied by treating only one component of the discharge as actual duty paid, and the notification must be construed harmoniously with the applicable credit mechanism.

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