Modvat credit cannot be denied when the input supplier lawfully chooses concessional duty instead of full exemption.

Modvat credit could not be denied to the recipient manufacturer merely because the supplier of inputs opted for a concessional duty notification instead of a full exemption. Where the supplier was entitled to choose between two available exemption notifications and elected to pay duty at the concessional rate, that statutory choice could not be dictated by the Revenue. On that basis, the recipient remained eligible for credit, and the denial of Modvat credit was held unjustified.

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Issues: Whether Modvat credit could be denied to the recipient manufacturer merely because the inputs' manufacturer chose a concessional duty notification instead of a full exemption notification.

Analysis: The inputs were cleared under one of two available exemption notifications, one granting clearance free of duty and the other prescribing concessional duty. The manufacturer of the inputs elected to pay duty at the concessional rate. That choice could not be compelled or dictated by the Revenue. Since the first manufacturer was entitled to adopt either notification, the recipient could not be denied credit on that basis.

Conclusion: The denial of Modvat credit was not justified and the assessee was entitled to the credit.

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