Transitional MODVAT credit on job-worked grey fabrics upheld where processed goods were cleared on duty-paid basis.

Deemed MODVAT credit on grey fabrics lying in stock on 01.04.2004 was upheld because the fabrics were sent to job workers under the assessee's invoices for processing under the prescribed procedure, and duty was paid when the processed goods were cleared. In that revenue-neutral situation, denial of transitional credit was not justified. The objection based on an alert circular and alleged non-existence of the unit could not prevail, as those points were not part of the show-cause notice or the orders below and did not displace the factual findings on remand. The demand with interest was therefore not sustainable.

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Issues: Whether deemed modvat credit on grey fabrics lying in stock on 01.04.2004 was admissible when the goods were sent to job workers for processing under invoice and the processed goods were cleared on payment of duty.

Analysis: The stock of grey fabrics had been declared and the credit was claimed under the transitional notification governing deemed credit. The record showed that the grey fabrics were sent to processing houses under the assessee's invoices for job work under Rule 12-B of the Central Excise Rules, 2002, and that duty was discharged on the processed goods cleared by the job workers on behalf of the assessee. Once the goods were sent for processing on payment of duty and the processed goods also suffered duty, the demand denying credit ceased to have justification. The objection based on an alert circular and alleged non-existence of the unit was not part of the show cause notice or the orders below and could not displace the factual findings recorded on remand.

Conclusion: The deemed modvat credit was correctly availed and the demand with interest was not sustainable.

Final Conclusion: The Revenue appeal failed and the assessee's entitlement to the credit was upheld on the basis that the transaction was duty-paid and revenue neutral.

Ratio Decidendi: Where inputs are sent for job work under the prescribed procedure and duty is paid on the processed goods, denial of transitional deemed credit is not warranted, particularly when the overall exercise is revenue neutral.

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