Modvat credit on duty-paid CNC spares upheld where the goods were received and used despite Revenue's objection about an old machine.

Modvat credit on duty-paid spares used in a CNC system was held admissible where the record showed that the spares were received with duty-paying documents and used in the factory for manufacture of finished goods. The Revenue's objection that an old repaired machine had been received did not displace the fact that credit was taken only on actual duty-paid spares incorporated in the machine. On those facts, denial of credit was not justified, and the associated penalty was also unsustainable.

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Issues: Whether Modvat credit on duty-paid spares used in the CNC system was admissible when the Revenue alleged that the appellants had received only a repaired old machine and not the goods reflected in the duty-paying documents.

Analysis: The record showed that fresh spare inputs were duty paid and returned by the supplier along with the CNC machine, and that the appellants had availed credit on those spares on the strength of duty-paying documents. There was no dispute that the spares were received and used in the appellants' factory for manufacture of finished goods. The Revenue's objection rested only on the assertion that an old CNC machine had been received, but that did not dislodge the fact that credit was taken on duty-paid spares actually used in the machine. In these circumstances, denial of credit was inconsistent with the established facts.

Conclusion: The Modvat credit was admissible and the disallowance of credit and penalty could not be sustained.

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