Deemed Modvat credit turns on actual non-payment of duty and proof of exemption conditions in input claims.

Deemed Modvat credit under Government orders issued under Rule 57G(2) of the Central Excise Rules, 1944 applies where inputs were in fact not duty paid, including cases of nil rate, unconditional exemption, or satisfied conditional exemption. A manufacturer claiming the benefit must take a clear stand and produce supporting material, while the Revenue must verify the claim through enquiry and show that the relevant exception does not apply. In conditional exemption cases, the mere existence of an exemption notification is insufficient unless compliance with all conditions is established.

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Issues: Whether inputs covered by a Government order under the second proviso to Rule 57G(2) of the Central Excise Rules, 1944 were entitled to deemed Modvat credit, and how the burden of proof operates where the inputs are claimed to be wholly exempt, charged to nil rate of duty, or otherwise not duty paid.

Analysis: The answer was governed by the earlier Larger Bench ruling on the same question. It was held that the expressions covering inputs not duty paid, charged to nil rate of duty, or wholly exempt from duty extend to cases where duty was in fact not paid for any reason, including unconditional exemption and satisfied conditional exemption. A manufacturer seeking the benefit of the Government order must take a definite stand and produce the necessary material, while the Revenue must verify the claim by enquiry and establish that the relevant exception is not attracted. In the case of conditional exemption, it is not enough to rely on the mere existence of an exemption notification without showing that all conditions were fulfilled.

Conclusion: The referred question was answered in accordance with the earlier Larger Bench view, and the appeals were disposed of on that basis.

Ratio Decidendi: For deemed credit under the Government orders issued under Rule 57G(2) of the Central Excise Rules, 1944, the decisive inquiry is whether duty was actually not paid and, where exemption is conditional, whether the conditions were in fact satisfied; the Revenue bears the duty to verify and establish the applicability of the exception.

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