Deemed Modvat credit cannot be denied when prescribed invoices and declarations under the compounded levy scheme are produced.

Deemed Modvat credit could not be denied merely because the input supplier was said not to have discharged the entire duty liability, where the invoices complied with the compounded levy scheme and carried the prescribed declaration. The governing notification required only the specified invoice and declaration; no further proof of actual duty payment by the supplier could be insisted upon from the recipient. On that basis, the recipients were entitled to credit, and the denial of credit with consequential penalty was unsustainable.

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Issues: Whether deemed Modvat credit could be denied merely because the input supplier had allegedly not discharged the entire duty liability, where the invoices carried the declaration required under the compounded levy scheme.

Analysis: The inputs were covered by invoices issued by manufacturers operating under the Compounded Levy Scheme under Rule 96ZP of the Central Excise Rules, 1944 read with Section 3A of the Central Excise Act. The invoices declared that duty liability had been discharged under Rule 96ZP(3) read with Section 3A. The only question was whether the recipient had to prove anything further beyond the supplier's declaration to avail deemed Modvat credit under the governing notification. The issue had already been settled by the High Court in favour of the assessee, holding that where the notification only requires the prescribed invoice and declaration, no additional proof of actual duty payment by the supplier can be demanded from the recipient.

Conclusion: The respondents were entitled to avail deemed Modvat credit on the strength of the relevant invoices. The denial of credit and the consequential penalty were unsustainable, and the Revenue's appeal failed.

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