Valuation of rusted scrap and Modvat reversal required proper enquiry; unsupported demand was remanded for fresh consideration.

Clearance of unused HR sheets as rusted scrap after reversal of Modvat credit required verification of the nature of removal and the basis of valuation. The Department had not examined the appellant's plea that the goods remained unused for years, had rusted, and were cleared only as scrap, nor had it disclosed any evidence supporting the valuation adopted for duty demand. Because the enquiry was incomplete and the valuation lacked an evidentiary foundation, the adjudication was found deficient. The matter was remanded for fresh consideration after proper enquiry and observance of natural justice.

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Issues: Whether the demand and penalty could be sustained when the appellant claimed that the inputs were cleared as rusted scrap after reversal of Modvat credit and the Department had not verified the plea or established the basis of valuation.

Analysis: The appellant's case was that the HR sheets had been received as inputs, remained unused for years, became rusted, and were cleared as scrap, requiring reversal only of the credit originally taken. The record showed that this plea had not been verified by the Department. The valuation adopted by the Revenue at Rs. 27,000 per MT was also unsupported by any disclosed basis or evidence. In these circumstances, the adjudication was found to be incomplete because the Department had not carried out the necessary enquiry into the nature of clearance or furnished the material on which the valuation was fixed.

Conclusion: The matter was required to be reconsidered after proper enquiry and observance of natural justice, and the appeal was allowed by way of remand.

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