Modvat credit on debonding stock denied where inputs were duty-free and duty on finished goods could not be claimed as credit.

Modvat credit was unavailable where a hundred per cent export oriented unit, on debonding, sought credit on the duty element relatable to inputs contained in finished goods lying in stock. The scheme required duty-paid inputs received in the factory and used in manufacture, but the inputs had been procured duty-free. Duty paid on the finished goods could not be treated as admissible Modvat credit. The claim was therefore rejected.

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Issues: Whether Modvat credit was admissible on the duty element relatable to inputs contained in finished goods lying in stock on the date of debonding of a hundred per cent export oriented unit.

Analysis: The goods lying in stock on the date of debonding were treated as finished goods in the settled dispute arising out of the Kar Vivad Samadhan Scheme. The substantive condition for Modvat credit required receipt of duty-paid inputs in the factory and their use in the manufacture of final products. The unit had procured its inputs duty-free as a hundred per cent export oriented unit, and no duty had been paid on those inputs. What was paid was duty on finished goods, and duty paid on finished goods is not available as Modvat credit under the scheme.

Conclusion: Modvat credit was not admissible and the claim was rejected.

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