Deemed Modvat credit on job-worked gray fabrics cannot be denied where duty was charged during processing.

Deemed Modvat credit on gray fabrics cannot be denied merely because the goods were sent to a job worker for processing. Where the facts showed that duty had in fact been charged from the job worker during the processing of the goods, the condition for denying credit was not met. The appellate order allowing the credit was therefore sustained, and the Revenue's challenge failed. The principle stated is that job work by itself does not justify disallowance of deemed credit when duty has been levied in the course of processing.

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Issues: Whether deemed Modvat credit on gray fabrics could be denied to the assessee on the ground that the job worker was not required to pay duty under Notification No. 214/86-C.E. dated 25-3-1986.

Analysis: The denial of credit was based on the view that the job worker, to whom the gray fabrics were sent for job work, was not liable to pay duty under the notification. The appellate authority found, on the facts, that duty had in fact been charged from the job workers who processed the goods. On that basis, the condition for denying deemed credit was not attracted. The order allowing credit was therefore held to be correct.

Conclusion: Deemed Modvat credit could not be disallowed on the facts found, and the assessee's claim was upheld.

Final Conclusion: The Revenue's challenge to the grant of deemed credit failed, and the appellate order in favour of the assessee was sustained.

Ratio Decidendi: Deemed Modvat credit cannot be denied merely because the goods were sent for job work; denial is not justified where duty has been charged from the job worker in the course of processing.

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