Modvat credit on duty-paid imported steel sheets was upheld despite staged duty payment and scrap clearance.

Modvat credit on countervailing duty paid on imported steel sheets used as inputs was admissible where the sheets were consumed in manufacture of body panels and the resulting waste and scrap were cleared on payment of duty. The fact that the imported goods were duty paid through ex-bond clearance after the manufacturing activity, or that duty was discharged in stages rather than in one payment, did not alter the position that duty had been paid on the inputs used. On these facts, denial of Modvat credit was unjustified and the credit was correctly allowed.

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Issues: Whether Modvat credit on CVD paid on imported steel sheets used in manufacture, where waste and scrap arising from the process was cleared on payment of duty and duty was paid in stages, was admissible.

Analysis: The respondents had imported steel sheets and paid countervailing duty on them. Those sheets were used in the manufacture of body panels, and the waste and scrap generated in the process was cleared to dealers and customers on payment of appropriate excise duty. The fact that the duty on the imported material was discharged through ex-bond clearance after the manufacturing activity, or in two stages rather than one, did not affect the basic position that duty had been paid on the total quantity of imported steel sheets used as inputs. On these facts, the denial of Modvat credit was not justified.

Conclusion: Modvat credit was correctly allowed and the departmental challenge failed on this issue.

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