Proforma credit on duty-paid yarn remains available when re-warehoused goods are ultimately cleared on duty.

Proforma credit/Modvat credit on duty-paid cotton yarn was treated as admissible where the inputs were moved under Rule 96E for further processing, duly re-warehoused, and accounted for under the warehousing scheme. The analysis noted that once the goods were received and the final product was cleared on payment of duty under the applicable warehousing provisions, the intermediate movement did not by itself deny credit. In the absence of any express prohibition in the relevant rules, credit on the duty-paid input could not be refused.

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Issues: Whether Proforma credit/Modvat credit was admissible on duty-paid cotton yarn when the goods were moved under Rule 96E for further processing and the duty on the final product was ultimately discharged under the warehousing procedure.

Analysis: The credit scheme under Rules 56A and 57A was examined along with the movement procedure under Rule 96E and the re-warehousing framework under Rules 157 and 173N. The record showed that the consignments were accompanied by AR3A documents, were duly re-warehoused, and were accounted for at the consignee's factory or warehouse. Once the goods were received and accounted for under the warehousing provisions, the consignee was required to clear them on payment of duty under Rule 157 as modified by Rule 173N. In these circumstances, the goods could not be treated as having been finally cleared without duty merely because the intermediate movement was under Rule 96E. There was nothing in the relevant rules prohibiting credit on the duty-paid yarn used as input when the ultimate duty liability on the final product was discharged.

Conclusion: Proforma credit/Modvat credit was rightly allowed and the Revenue's challenge failed.

Ratio Decidendi: Where duty-paid inputs are used in manufacture and the goods moved under Rule 96E are duly re-warehoused and ultimately cleared on payment of duty, credit under the input-modvat scheme cannot be denied in the absence of an express prohibition.

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