Modvat credit on job-worked inputs is admissible when prescribed procedure is followed and duty is paid on returned goods.

Modvat credit remained admissible where inputs were lawfully sent to a job worker under the prescribed procedure and returned goods suffered duty without the job worker having taken credit on the inputs. The Tribunal rejected the contention that the duty paid by the job worker was merely a deposit, holding that the amount had been paid to the exchequer on manufactured goods and that the manufacturer had not taken double credit on the same inputs. Credit on the strength of the prescribed challan and duty payment was therefore in accordance with the rules, and the demand and penalty were unsustainable.

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Issues: Whether Modvat credit was admissible when inputs were sent to a job worker under Rule 57F(4), duty at 10% was debited on removal, and credit was again taken on the duty paid by the job worker on the returned goods.

Analysis: The appellants followed the prescribed procedure for movement of inputs to the job worker and their return. The duty paid by the job worker was on goods manufactured using the appellants' inputs, and that payment had already gone to the exchequer. The view that the amount paid by the job worker was only a deposit was rejected as unsustainable. The record showed no taking of credit twice on the same input, and the allowance of credit on the strength of the prescribed challan and the duty paid by the job worker was held to be in accordance with the rules. The conclusion was also supported by prior Tribunal decisions recognising credit in similar job-work situations.

Conclusion: Modvat credit was admissible, and the demand and penalty could not be sustained.

Final Conclusion: The appeals succeeded and the appellants were entitled to the relief flowing from the setting aside of the adverse orders.

Ratio Decidendi: Where inputs are lawfully sent to a job worker under the prescribed Modvat procedure and the job worker pays duty on the returned goods without having taken credit on the inputs, the manufacturer is not denied credit merely because the duty paid by the job worker includes the value of the supplied inputs.

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