Modvat credit for job-worker inputs allowed, but credit on yarn embedded in fabric denied absent proof of receipt and duty payment.

Modvat credit was admissible on qualifying inputs lying in a job worker's premises because the same entitlement had already been accepted on identical facts and no distinction arose merely from the location of the inputs. Credit was also sought on yarn embedded in received fabric, but that claim failed because the assessee received fabric, not yarn, and produced no documentary proof that duty had been paid on yarn as a separately received input. The governing rule permitted credit only for inputs received by the manufacturer, so absence of proof of receipt and duty-paid character justified denial on that item.

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Issues: (i) whether Modvat credit was admissible on inputs lying in the premises of a job worker; and (ii) whether Modvat credit was admissible on the duty paid on yarn contained in the fabric received by the assessee.

Issue (i): whether Modvat credit was admissible on inputs lying in the premises of a job worker.

Analysis: The Modvat scheme had been extended to goods falling under Chapter 59, and the assessee had sought credit on inputs already lying with the job worker. The connected appellate order had already allowed such credit on the same factual footing. No different view was warranted merely because the inputs were in the job worker's premises rather than in the factory.

Conclusion: Modvat credit on the inputs lying with the job worker was admissible and the assessee succeeded on this issue.

Issue (ii): whether Modvat credit was admissible on the duty paid on yarn contained in the fabric received by the assessee.

Analysis: The assessee received fabric and not yarn, and the record did not show documentary proof of duty payment on the yarn as an input received by the assessee. Rule 57H allowed credit only on inputs received by the manufacturer, and the yarn, though embedded in the fabric, was neither separately received nor established by evidence of duty payment. Verification difficulties and the absence of proof of duty-paid character justified denial of credit.

Conclusion: Modvat credit on the duty paid on yarn contained in the fabric was not admissible and the assessee failed on this issue.

Final Conclusion: The assessee obtained relief on the credit relating to inputs lying with the job worker, but the denial of credit on yarn contained in the fabric was sustained, resulting in a mixed outcome.

Ratio Decidendi: Modvat credit is admissible for qualifying inputs lying with a job worker where the entitlement is otherwise established, but credit cannot be allowed on embedded materials in received goods unless the claimant proves receipt of the input and its duty-paid character with supporting evidence.

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