Modvat credit on inputs cannot be denied merely because the process was not treated as manufacture if duty paid on removal is sufficient.

Rule 57A allowed Modvat credit on specified inputs used in or in relation to manufacture, and Rule 57F(1) also permitted removal for home consumption on intimation to the proper officer, subject to the proviso that duty paid on removal was not less than the credit allowed. On that scheme, credit on PD pumps could not be denied merely because the process undertaken was said not to amount to manufacture, where duty paid on clearance exceeded the credit taken. The Tribunal's approach was treated as consistent with the rules, and the issue was answered in favour of the assessee.

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Issues: Whether Modvat credit taken on PD pumps could be denied on the ground that no manufacturing activity was carried out before clearance, and whether the Tribunal was right in treating the goods as inputs under the relevant rules.

Analysis: Rule 57A of the Central Excise Rules, 1944 governed credit of duty paid on specified inputs used in the manufacture of final products. Rule 57F(1) permitted two situations: inputs could be used in or in relation to manufacture, or they could be removed for home consumption after intimation to the proper officer. In the latter case, the proviso required that the duty paid on removal should not be less than the credit earlier allowed. The Tribunal's reasoning that credit could not be denied where the assessee had paid duty on clearance of the final output, and that such duty exceeded the credit taken, accorded with this scheme.

Conclusion: Modvat credit could not be denied merely because the process undertaken was said not to amount to manufacture, since the duty paid on clearance was not less than the credit allowed. The issue was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where inputs on which Modvat credit has been allowed are removed for home consumption, credit cannot be denied merely on the ground that the process undertaken did not amount to manufacture, provided the duty paid on removal is not less than the credit allowed under the rules.

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