Deemed Modvat credit cannot be denied on mere allegations against the original manufacturer without proof of identity, non-duty-paid goods, or collusion.

Deemed Modvat credit under Notification No. 202/88-C.E. could not be denied merely because the original manufacturer was alleged to have evaded duty. Where the inputs were purchased from market traders, and there was no tangible evidence that the goods were non-duty-paid, no proof identifying the purchased goods with the allegedly evaded clearances, and no showing of collusion, the notification benefit remained available. Earlier tribunal decisions on similar facts supported the same approach. The assessee was entitled to the credit, and the denial was set aside with consequential relief.

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Issues: Whether deemed Modvat credit under Notification No. 202/88-C.E. could be denied merely because the original manufacturer was alleged to have evaded duty, when the inputs were purchased from market traders and no tangible evidence showed that the goods suffered no duty or that there was collusion.

Analysis: The appellants procured M.S. billets from various traders in the market and had no direct dealings with the alleged defaulting manufacturer. No tangible material established that the goods in the hands of the traders were non-duty-paid goods, nor was there proof identifying the goods purchased by the appellants with those allegedly cleared without duty by the manufacturer. In the absence of evidence of identity of goods or collusion, the alleged evasion by the manufacturer could not by itself justify denial of the notification benefit. The issue was also covered by earlier tribunal decisions allowing credit in similar circumstances.

Conclusion: The denial of deemed Modvat credit was not justified and the assessee was entitled to the credit under the notification.

Final Conclusion: The order denying credit was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Deemed Modvat credit cannot be denied solely on allegations against the original manufacturer unless there is tangible evidence linking the purchased goods to the alleged duty evasion and showing collusion or identity of goods.

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