Deemed Modvat credit cannot be denied to the buyer merely because the supplier short-paid duty on Rule 96ZP invoices.

Deemed Modvat credit under Notification No. 58/97-C.E. (N.T.) could not be denied to the recipient manufacturer merely because the supplier had not paid the full excise duty, where the invoices showed clearance under Rule 96ZP of the Central Excise Rules, 1944. The controlling position was that a recipient acting on such invoices is entitled to credit, and any short-payment dispute must be pursued against the supplier/manufacturer rather than the recipient. The issue was therefore resolved against the Revenue and in favour of the assessee.

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Issues: Whether deemed credit under Notification No. 58/97-C.E. (N.T.) dated 30-8-1997 could be denied to the recipient manufacturer merely because the supplier of inputs had not paid the full excise duty, although the invoices showed clearance under Rule 96ZP of the Central Excise Rules, 1944.

Analysis: The appeal challenged the grant of deemed Modvat credit to the respondent on the ground that the input supplier had not discharged the appropriate duty. The controlling legal position had already been settled against the Revenue, namely that where credit is taken on invoices showing clearance under Rule 96ZP, the recipient cannot be denied credit merely for default in duty payment by the supplier. Any grievance regarding short payment of duty lies against the supplier/manufacturer, not against the recipient who acted on the strength of the invoices.

Conclusion: The issue was answered against the Revenue and in favour of the assessee. The deemed credit could not be denied on the stated ground.

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