MODVAT deemed credit requires the claimant to identify and substantiate qualifying inputs before credit can be allowed.

MODVAT deemed credit under the 7 April 1986 order was treated as a limited exception to the general rule that credit is available only on duty-paid inputs. A manufacturer claiming the higher or specific deemed credit had to identify the input with certainty and support eligibility with bills or other evidence. The order did not create a blanket presumption that all scrap or steel inputs qualified, and the department could test whether the claim fell within the stated exclusions, including goods recognisable as non-duty paid or chargeable at nil rate. The claimant, not the department in the first instance, had to make a definite and substantiated claim.

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Issues: Whether manufacturers claiming MODVAT deemed credit under the order dated 7 April 1986 had to take a definite stand as to the nature of the input and establish eligibility, and whether the burden lay on the department to disprove the claim.

Analysis: The MODVAT scheme was framed to avoid duty on duty, but the second proviso to Rule 57G(2) created only a limited exception allowing deemed credit for specified inputs purchased from outside and lying in stock on or after 1 March 1986. The manufacturer seeking the higher or particular rate of credit had to identify the input with certainty and support the claim by bills or other evidence. The order did not authorise a general presumption that every scrap or steel input automatically qualified for credit, and the department could test whether the claim fell within any of the stated exclusions, including goods clearly recognisable as non-duty paid or charged to nil rate of duty.

Conclusion: The manufacturer had to make a definite claim and establish the input on which deemed credit was sought. The burden was not on the department in the first instance, and the assessee's challenge failed.

Final Conclusion: The appellate court upheld the setting of the claim as outside the assessee's case and declined to interfere with the dismissal of the writ petitions, thereby confirming the revenue's stand.

Ratio Decidendi: A statutory deemed-credit exemption under MODVAT is a limited exception to the general rule that credit is available only on duty-paid inputs, and the claimant must identify and substantiate the qualifying input before credit can be allowed.

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