Modvat credit on duty-paid washing machines was inadmissible, with duty paid on clearance to be set off against the credit taken.

Modvat credit was not available on duty-paid washing machines brought into the factory under permissions obtained for trading or repairs, because the relevant permissions under Rule 51A and Rule 173H contemplate receipt of duty-paid goods without manufacture. Since the machines were later cleared on payment of central excise duty as if manufactured, that duty payment could be adjusted against the inadmissible credit already taken. The matter therefore required verification of the exact credit and duty figures to determine only the balance, if any, recoverable after set-off.

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Issues: Whether Modvat credit was admissible on duty-paid washing machines brought into the factory under permissions granted for trading or repairs, and whether the duty paid at the time of clearance could be set off against the credit taken.

Analysis: Permission had been sought and granted under Rule 51A of the Central Excise Rules, and the assessee had also applied under Rule 173H of the Central Excise Rules. Both provisions contemplate bringing duty-paid goods into the factory without manufacture being involved. On that basis, credit was not available on the incoming washing machines. At the same time, the machines were cleared on payment of central excise duty as if manufactured, which reduced the effect of the incorrect credit taken. The remaining issue was the exact quantum of credit and duty requiring adjustment.

Conclusion: Modvat credit was not admissible on the duty-paid washing machines, and the matter was required to be verified for set-off of duty paid against credit taken and recovery of only the balance, if any.

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