Reclassification duty demands may reach six months before notice after statutory amendment, while unchallenged Modvat credit remains undisturbed.

After the statutory amendment in Section 110 of the Finance Act, 2000, duty demands arising from reclassification of goods could be sustained for the six months preceding the show cause notice, and the demand for that period was upheld. The grant of Modvat credit on inputs used in manufacture was left undisturbed because the Revenue had not challenged that relief, so there was no basis to interfere. The principal challenge to the demand therefore failed, while the credit benefit remained intact and the appeals were dismissed.

---

---

Issues: (i) Whether duty demand could be confirmed for the period of six months prior to the show cause notice in cases of reclassification of goods; (ii) whether the grant of Modvat credit on inputs used in the manufacture of the final product required interference.

Issue (i): Whether duty demand could be confirmed for the period of six months prior to the show cause notice in cases of reclassification of goods.

Analysis: The prior view that reclassification demands could not be raised retrospectively was displaced by the legislative change brought in by Section 110 of the Finance Act, 2000. In the light of that amendment, demands on reclassification were held admissible even for the six months preceding the show cause notice.

Conclusion: The demand for the six months prior to the show cause notice was upheld against the assessee.

Issue (ii): Whether the grant of Modvat credit on inputs used in the manufacture of the final product required interference.

Analysis: The grant of Modvat credit was not the subject of any Revenue challenge and there was no basis to disturb that part of the order.

Conclusion: The grant of Modvat credit was sustained in favour of the assessee.

Final Conclusion: The principal challenge to the demand failed, while the allowance of Modvat credit remained undisturbed, resulting in dismissal of the appeals.

Ratio Decidendi: After the statutory amendment, duty demands in cases of reclassification of goods may be raised for the six months preceding the show cause notice, and unchallenged relief granted below will not be interfered with.

---