Deemed Modvat credit denied on exempt brass and copper utensil scrap where no duty had been paid.

Deemed Modvat credit was denied on brass and copper utensil scrap because the goods were exempt from duty and no duty had been paid on them. The scrap consisted of utensils classifiable under Tariff Item 7418.10, not sheets used in manufacture, and the exemption notification covered those items. Since deemed credit is available only where duty has in fact been paid or the goods are otherwise eligible under the scheme, the claim could not be sustained.

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Issues: Whether the assessee was entitled to Modvat deemed credit on brass and copper utensil scrap which was exempt from duty.

Analysis: The scrap purchased by the assessee consisted of brass and copper utensils falling under Tariff Item 7418.10. The relevant notification exempted such goods from duty. The goods purchased were not sheets used in manufacture, but scrap of utensils, and it was admitted that no duty was payable on those items. On that basis, the claim for deemed credit could not be sustained.

Conclusion: The assessee was not entitled to Modvat deemed credit on the exempted scrap.

Ratio Decidendi: Deemed credit is not available on goods that are exempt from duty and on which no duty has been paid.

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