Deemed Modvat credit under compounded levy scheme cannot be denied merely because Revenue disputes the supplier's duty quantum.

A purchaser of iron and steel inputs was entitled to deemed Modvat credit under Notification No. 58/97 where the supplier had discharged duty under the compounded levy scheme under Section 3A and the invoice carried the required declaration. The notification did not require verification of the exact correctness of the duty actually paid by the supplier, and the flat credit rate of 12% of input value operated once duty payment under Section 3A was shown. The buyer therefore could not be denied credit merely because Revenue disputed the supplier's duty liability. The denial of deemed credit was unsustainable, and the assessee was entitled to the benefit.

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Issues: Whether the buyer of iron and steel inputs was entitled to deemed Modvat credit under Notification No. 58/97 where the supplier had discharged duty under the compounded levy scheme under Section 3A of the Central Excise Act, but there was a dispute as to the quantum of duty paid.

Analysis: The notification required only that the inputs be purchased directly from a manufacturer who had discharged duty under Section 3A and that the invoice contain the requisite declaration of duty payment. The entitlement to deemed credit was at a flat rate of 12% of the value of the inputs and did not depend on the exact correctness of the duty actually paid by the supplier. Once duty payment under Section 3A was , the buyer could not be denied credit merely because Revenue disputed the supplier's duty liability. The issue was covered by the binding High Court ruling and consistent Tribunal decisions.

Conclusion: The denial of deemed Modvat credit was not sustainable, and the assessee was entitled to the credit.

Ratio Decidendi: Where a notification grants deemed credit on proof that the supplier has discharged duty under a compounded levy scheme, the purchaser cannot be denied such credit merely because the quantum of duty paid by the supplier is disputed by Revenue.

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