Transitional Modvat credit limited to duty paid on pre-declaration stock; enhanced credit applies only to qualifying post-option procurement.

Rule 57H governed transitional Modvat credit for inputs received before acknowledgment of the declaration under Rule 57G and confined credit to the duty actually paid on such stock. Rule 57B, which provided higher credit for inputs procured from small scale manufacturers after opting for the Modvat scheme, was not intended to operate retrospectively on inputs already lying in stock. The scheme preserved a clear distinction between pre-declaration stock and post-declaration procurement, so the enhanced credit could not be extended to inputs held on the date of acknowledgment. Higher Modvat credit was therefore unavailable for that stock.

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Issues: Whether Rule 57B of the Central Excise Rules, 1944 applied to inputs lying in stock on the date the manufacturer obtained acknowledgment of the declaration under Rule 57G, so as to permit higher Modvat credit in respect of such inputs.

Analysis: Rule 57H governed credit for inputs received immediately before acknowledgment of the declaration and limited such credit to the duty actually paid on the inputs. The higher credit contemplated by Rule 57B was meant to operate where the manufacturer, after opting for the Modvat scheme, chose to procure inputs from small scale manufacturers and thereby became entitled to the enhanced rate. The scheme did not disclose any intention to extend that higher credit retrospectively to inputs already in stock before the declaration was acknowledged. Reading Rule 57B into Rule 57H would ignore the distinction deliberately drawn by the rule-making authority between pre-declaration stock and post-declaration procurement.

Conclusion: Rule 57B did not apply to inputs lying in stock when the declaration under Rule 57G was acknowledged, and the assessee was not entitled to higher Modvat credit on such stock.

Ratio Decidendi: Transitional credit for pre-declaration stock is confined to the duty actually paid, while the enhanced benefit under Rule 57B applies only to qualifying procurement made after opting for the Modvat scheme.

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