Modvat credit on duty-paid rejected goods used as inputs remains available when final products are manufactured and duty is paid again.

Rejected goods received back from buyers under valid duty-paying documents, when actually used as inputs in the manufacture of final products and the final products are again duty-paid, are treated as eligible for Modvat credit under Rule 57A of the Central Excise Rules. The note relies on the Tribunal's earlier view and the Board circular supporting credit on such duty-paid inputs, and states that in the absence of contrary authority disallowance of credit is not sustainable.

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Issues: Whether Modvat credit was admissible on rejected goods received back from buyers under valid duty-paying documents and used as inputs in the manufacture of final products.

Analysis: The rejected goods were received back due to damage in transit under valid duty-paying documents and were actually used as inputs in the manufacture of final products on which duty was again paid. The issue was covered by the Tribunal's earlier view that once such duty-paid goods are used as inputs, credit is available under Rule 57A of the Central Excise Rules, supported by the Board circular relied upon. In the absence of any contrary authority, disallowance of credit could not be sustained.

Conclusion: Modvat credit was admissible and the disallowance was set aside, in favour of the assessee.

Ratio Decidendi: Duty-paid rejected goods received back under valid documents and used as inputs in the manufacture of final products qualify for Modvat credit.

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