Modvat clearance of duty-paid inputs: duty is based on original excise duty paid, not the higher resale price.

Duty on clearance of duty-paid inputs after reversal of Modvat credit is governed by Rule 57F(2) read with the Modvat scheme under Rule 57A, and the appropriate duty is the duty originally paid when the inputs were first removed, not duty computed on the higher resale value. A subsequent sale at an enhanced price does not justify reassessment on that higher value. The impugned demand could not be sustained, and the assessee succeeded.

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Issues: Whether duty on clearance of duty-paid inputs from the factory, after reversal of Modvat credit, was payable on the higher sale value of the inputs or only on the duty originally paid on those inputs.

Analysis: The dispute was governed by Rule 57F(2) of the Central Excise Rules, 1944, as it then stood, which required clearance of such inputs on payment of appropriate duty of excise as if the inputs had been manufactured in the factory. The applicable rule, read with the Modvat scheme under Rule 57A of the Central Excise Rules, 1944, was interpreted to mean that appropriate duty for such clearance was the duty originally paid when the inputs were first removed by the manufacturer to the assessee. The fact that the inputs were later sold at a higher price did not justify levy of duty on the enhanced value.

Conclusion: Duty was payable only with reference to the duty originally paid on the inputs and not on the higher resale price. The demand confirmed by the impugned order could not be sustained, and the assessee succeeded.

Ratio Decidendi: Where duty-paid inputs cleared from a factory are covered by the Modvat scheme, the expression

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