Can Modvat Credit Be Refunded When Goods Are Later Found Non-Excisable? Supreme Court to Decide [Read Order]

The Supreme Court of India is set to decide whether Modvat credit used to pay duty on goods that were later found to be non-excisable can be refunded or reversed under the Central Excise Act, 1944.

The case arises from a judgment of the Andhra Pradesh High Court decided on 30 April 2015. The High Court ruled that while the duty paid by the assessee under protest was not barred by limitation, Modvat credit once utilized could not be refunded or recredited under the provisions of the Central Excise Rules.

Surana Telecom Ltd., a manufacturer of cable jointing kits, had paid Rs. 1,01,92,689 as excise duty between 1996 and 1997, out of which Rs. 95,56,264 was paid under protest on goods cleared to the Department of Telecommunications (DoT). The company later sought a refund after the Andhra Pradesh High Court, in an earlier case, held that assembling cable jointing kits did not amount to manufacture and was not excisable.

The Revenue department rejected the refund claim, stating that it was time-barred under Section 11B of the Central Excise Act and that the protest was invalid as the letter was submitted to the Superintendent instead of the Assistant Commissioner. They also argued that Modvat credit once used could not be refunded in cash or recredited except in cases of export.

On further appeal, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, ruled in favour of the assessee and directed the department to recredit the duty amount in the Modvat registers. The Revenue challenged this decision before the High Court.

The Division Bench of Justice Dilip B. Bhosale and Justice A. Ramalingeswara Rao observed that the Commissioner (Appeals) had already found substantial compliance with Rule 233B of the Central Excise Rules and that the duty had been paid under protest.

The court explained that the Tribunal’s direction to recredit the Modvat registers was legally unsustainable since there was no provision permitting such recredit once the credit had been used to pay duty. It pointed out that under Rule 57F and Rule 57L, Modvat credit could not be refunded or restored when utilized for non-excisable goods.

The High Court observed that the assessee failed to prove that the burden of duty was not passed on to third parties, except for Rs. 3,45,548 paid from the Personal Ledger Account, which was supported by a DoT certificate confirming non-reimbursement.

The High Court partly allowed the Revenue’s appeal and set aside the Tribunal’s direction to recredit the Modvat registers. It ruled that only Rs. 3,45,548 was refundable and that the balance amount, representing Modvat credit, could not be refunded or reversed.

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The matter has now reached the Supreme Court. The Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar heard the case on 6 November 2025 and directed it to be listed before another Bench.

The Supreme Court will now decide whether Modvat credit used to pay duty on goods later found non-excisable can be refunded or reversed under the Central Excise Act.

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