Modvat credit on returned rejected goods is admissible when they are remelted and used to make fresh final products.

Modvat credit was held admissible on duty-paid final products returned by buyers, rejected, remelted and used to manufacture fresh final products. The ruling treated the returned goods as eligible inputs once they were subjected to melting and reprocessing for new output. It also noted that the Board's circular clarified credit eligibility in such cases, and departmental authorities could not act contrary to that binding clarification. Credit was therefore accepted for the rejected goods used in re-manufacture, with the reference answered in favour of the assessee.

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Issues: Whether Modvat credit was admissible on duty-paid final products returned by buyers, rejected, remelted, and used for manufacture of fresh final products.

Analysis: The returned consignments, though initially cleared as final products, were subsequently subjected to melting and used in the manufacture of fresh final products. The Board's circular clarified that Modvat credit would be admissible on rejected products treated as inputs when fresh products are made out of the same. Since departmental authorities cannot act contrary to binding Board clarifications, the eligibility to credit stood established.

Conclusion: Modvat credit was admissible on the returned rejected goods used for re-manufacture, and the reference was answered in favour of the assessee.

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