Modvat credit denial fails when the department's delay and a notice-based adjudication cannot defeat credit under amended rules.

Modvat credit could not be denied where the assessee acted under the amended Rule 57H after the department left the declaration pending for about 21/2 years despite repeated reminders. The assessee informed the Assistant Commissioner before taking credit, and the revenue could not rely on its own inaction to defeat credit otherwise available under the amended provision. The adjudication also failed because the show cause notice alleged only taking credit without prior permission, while the order proceeded on different grounds, including delayed availment and duplicate invoices. Credit denial was therefore unsustainable and consequential relief followed.

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Issues: Whether Modvat credit could be denied when the assessee acted on the amended Rule 57H after the departmental authority failed to decide the declaration for a long period, and whether the adjudicating authority could reject the credit on grounds not alleged in the show cause notice.

Analysis: The declaration under Rule 57H remained unattended for about 21/2 years despite repeated reminders. The assessee then took credit after informing the Assistant Commissioner and on the basis of the amended provision inserted by Notification No. 8/93-C.E. (N.T.). The show cause notice alleged only that credit had been taken without prior permission, but the adjudication proceeded on different grounds, namely delayed availment and use of duplicate invoices. The finding was that the department could not take advantage of its own inaction, and an adjudication based on grounds not put in the notice was impermissible.

Conclusion: The denial of Modvat credit was unsustainable and the appeal was allowed in favour of the assessee.

Final Conclusion: The impugned orders were set aside and the assessee was granted consequential relief.

Ratio Decidendi: An adjudication cannot sustain denial of credit on grounds not contained in the show cause notice, and the revenue cannot rely on its own failure to decide a pending declaration to defeat credit otherwise taken under the amended rule.

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