MODVAT credit on mixed-grade HDPE inputs upheld where manufacture and disclosure were proved; demand also failed on limitation.

MODVAT credit on duty-paid HDPE granules could not be denied merely because the granules were not the exact grade recommended for DOT-specification pipes, where the record did not show non-receipt, sale as such, or non-use in manufacture. The technical material, including manufacturers' letters and CIPET opinion, supported that pipes meeting the specification could be produced by blending different grades of virgin HDPE raw material. The demand was also time-barred because the assessee had disclosed the transactions in statutory records and returns, so suppression was not established. Penalties and interest founded on the demand could not survive.

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Issues: Whether MODVAT credit on duty-paid HDPE granules could be denied on the ground that the granules were not of the exact grade recommended for manufacture of DOT-specification pipes, and whether the demand was barred by limitation.

Analysis: The record did not establish that the granules on which credit was taken were not received in the factory, were sold as such, or were not used in the manufacture of the final product. The Department also did not produce evidence that the pipes cleared by the assessee were rejected by the buyer for want of conformity with specification. The materials relied upon, including manufacturers' letters and the technical opinion of CIPET, supported the position that pipes conforming to the required specification could be produced by blending or mixing different grades of virgin HDPE raw material. On limitation, the assessee had disclosed the relevant transactions in statutory records and returns, so suppression was not established.

Conclusion: MODVAT credit could not be denied on the facts proved, and the demand was time-barred. The penalties and interest founded on the demand could not survive.

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