Modvat credit on re-imported goods cannot be denied by linking it to an unproved drawback claim on earlier export.

Modvat credit on duty-paid re-imported goods used in manufacture could not be denied merely because drawback on the original export was not shown to have been sanctioned. The credit related to the duty actually paid on re-importation, and any drawback on the earlier export would concern only the duty on the exported goods or the inputs used in them. As the drawback objection was not raised in the show cause notice and was otherwise irrelevant to the re-imported goods, denial of credit was unjustified. The impugned order was set aside and the order in original restored with consequential relief.

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Issues: Whether Modvat credit of duty paid on goods re-imported and used in manufacture could be denied on the ground that drawback on the initial export was not shown to have been allowed.

Analysis: The duty for which credit was claimed had been paid again at the time of re-importation, and the credit was sought only in respect of that actual duty payment. The objection based on drawback on the earlier export was not raised in the show cause notice and, in any event, any drawback on the initial export would relate only to the duty paid on the exported goods or the inputs used in them. The absence of proof that drawback had been sanctioned could not justify denial of credit on the re-imported goods.

Conclusion: Modvat credit was admissible and could not be denied by linking it to the alleged drawback claim on the initial export.

Final Conclusion: The impugned order was set aside and the order in original was restored with consequential relief.

Ratio Decidendi: Credit of duty actually paid on re-imported goods used in manufacture cannot be denied on the basis of an unestablished or irrelevant drawback issue relating to the earlier export.

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