Deemed Modvat credit cannot be denied to the buyer when input duty was paid, despite the manufacturer's unpaid interest liability.

Deemed Modvat credit could not be denied to a buyer of inputs merely because the manufacturers had not paid interest on delayed duty, where the excise duty on the inputs had in fact been paid. The notification required payment of appropriate duty on the inputs, and that condition was satisfied. Interest on delayed duty was not treated as part of the duty itself, so a manufacturer's failure to discharge interest liability could not be visited on the buyer. Any recoverable interest claim lay against the manufacturers, and denial of credit to the assessee was unsustainable.

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Issues: Whether deemed Modvat credit could be denied to the buyer of inputs merely because the manufacturers of the inputs had not paid interest on delayed payment of duty, although the duty on the inputs had been paid.

Analysis: The inputs were received under invoices covered by Notification No. 58/97 dated 30-8-1997, and it was undisputed that the manufacturers had paid the excise duty on the inputs. The only default was non-payment of interest on delayed duty, but interest was not part of the duty itself. The condition in the notification required payment of appropriate duty on the inputs, and that condition stood satisfied. The buyer could not be denied credit for a lapse attributable to the manufacturers, and any interest liability, if recoverable, lay against the manufacturers.

Conclusion: The denial of deemed Modvat credit was unsustainable and the issue was decided in favour of the assessee.

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