Modvat credit on duty-paid purchases cannot be denied on suspicion without evidence of mala fide intent or duty evasion.

Modvat credit could not be denied where the duty paid on purchases had been deposited into the Treasury through the supplier and there was no material showing mala fide conduct or an intention to evade duty. The mere allegation that freight had been added to the basic price at clearance, increasing excise liability, was insufficient without evidence of any questionable act by either party. In the absence of proof of evasion, the duty already paid by the supplier and passed on to the buyer remained available as credit. The Revenue's challenge therefore failed and credit was allowed.

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Issues: Whether the respondent was entitled to Modvat credit when the duty paid on the purchases had gone into the Treasury through the supplier and there was no material to show any mala fide or intention to evade duty.

Analysis: The only allegation was that freight had been added to the basic price at the time of clearance, resulting in a higher excise liability. Beyond this, no evidence was brought to show any intentional act by either party causing evasion of revenue. In the absence of any questionable conduct, the duty paid by the supplier and passed on to the respondent could not be denied as credit merely on suspicion.

Conclusion: The respondent was entitled to take Modvat credit, and the Revenue's challenge failed.

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