Modvat credit under Rule 57E(2) cannot be denied merely because inputs moved under a job-work arrangement without sale.

Rule 57E(2) does not require the passing on of duty incidence to occur through a sale-purchase transaction, so credit cannot be denied merely because inputs were supplied under a job-work arrangement. Where the record shows that the supplier's duty payment was genuinely debited to the appellant's account before credit was taken, the incidence of duty is treated as passed on within the rule. On that basis, Modvat credit was admissible and the denial of credit was unsustainable.

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Issues: Whether credit under Rule 57E(2) could be denied on the ground that the inputs were supplied for job work without a sale-purchase transaction, and whether the incidence of duty on the inputs had been passed on.

Analysis: Rule 57E(2) requires that the incidence of the subsequently paid duty be transferred, but it does not insist that such transfer must necessarily occur through a sale or purchase mechanism. In a job-work arrangement, the absence of a sale between the supplier and the job worker does not by itself defeat credit. The material on record showed that the duty paid by the supplier was debited to the appellant's account before the credit was taken, and the department did not dispute the reality of that debit. Once that debit was accepted as genuine, the incidence of duty stood passed on within the meaning of the rule.

Conclusion: The appellant was entitled to Modvat credit under Rule 57E(2), and the denial of credit was unsustainable.

Ratio Decidendi: Transfer of duty incidence under Rule 57E(2) need not be effected through a sale-purchase transaction; a genuine debit reflecting passing on of the duty burden is sufficient to satisfy the rule.

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