Deemed Modvat credit cannot be denied where inputs were actually duty paid, despite a separate dispute over supplier certification.

Deemed Modvat credit under Notification No. 58/97-CE was available where the final products were made from inputs that were in fact duty paid at the appropriate rate. A collateral dispute about the supplier's annual capacity of production, or the absence or inaccuracy of the supplier's certificate under Rule 96ZP, did not by itself defeat the credit when duty payment on the inputs was not in dispute. The denial of deemed credit was therefore unsustainable, and the assessee remained entitled to the benefit.

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Issues: Whether the manufacturer of final products was entitled to deemed credit under Notification No. 58/97-CE dated 30.8.1997 when the supplier of inputs had not paid appropriate excise duty and had issued a wrong certificate or no certificate regarding duty payment under Rule 96 ZP of the Central Excise Rules, 1944.

Analysis: The dispute turned on whether the inputs were in fact duty paid and whether the benefit of deemed Modvat credit could be denied merely because the supplier's annual capacity of production was under dispute or because full duty liability had not yet been finally settled. The governing principle applied was that the benefit of the notification is available where the goods are made from duty-paid material and the relevant duty has, as a matter of fact, been paid at the appropriate rate. Since it was undisputed that the goods were made from duty-paid inputs and the rate of duty was not in dispute, the pendency of a dispute regarding the supplier's annual capacity did not defeat the credit.

Conclusion: The assessee was entitled to deemed credit, and the denial of such credit was unsustainable.

Ratio Decidendi: A deemed credit or exemption based on duty-paid inputs cannot be denied when the inputs are in fact duty paid at the appropriate rate, even if a collateral dispute exists about the supplier's capacity or certification.

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