Deemed Modvat credit on re-rollable steel fails when material is melted and ineligible credit is passed on by re-rollers.

Deemed Modvat credit on iron and steel re-rollable material was confined to cases where the material was actually used in re-rolling without being melted, in line with the Board's instructions. Where first-stage re-rollers had wrongly taken credit on material not used for re-rolling and passed that ineligible credit through endorsed documents, the recipient could not claim a better entitlement than the transferor. A manufacturer lacking re-rolling facilities and using the material only by melting it in induction furnaces did not satisfy the condition for deemed credit, so the credit was not admissible and the disallowance and penalty were sustained.

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Issues: Whether deemed Modvat credit on iron and steel re-rollable material was admissible to manufacturers who did not use the material for re-rolling but melted it in induction furnaces, and whether such credit could be disallowed when passed on by re-rollers who were themselves not entitled to it.

Analysis: The deemed credit scheme for ingots and re-rollable material of iron and steel was available only where the material was used in re-rolling without subjecting it to melting, in accordance with the Board's instructions. The facts showed that the first-stage re-rollers had taken deemed credit on material that was not used for re-rolling as required, and had passed on that ineligible credit to the appellants through GP 1s and endorsed documents. Since the appellants had no re-rolling facility and could use the material only by melting it, they did not satisfy the condition attached to admissibility of deemed credit. A transferee cannot acquire a better entitlement than that of the transferor, and ineligible credit passed on by one not entitled to it cannot become valid in the hands of the recipient.

Conclusion: The deemed Modvat credit was not admissible to the appellants, and the disallowance and penalty orders were upheld against them.

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