Modvat credit demands need verified facts, not assumptions, especially on receipt of inputs, stock, and duty already paid.

Modvat credit and penalty under Rule 57-I were said to be unsustainable where the adjudicating authority had not verified receipt of inputs, actual availment of credit, stock position, or duty already paid on unusable inputs. The note stresses that demand cannot rest on assumptions, especially where the record does not establish that the disputed chips were received or that credit was taken, and where no separate demand lies merely because inputs remained in stock. It also notes that any duty already paid on clearance of unusable chips had to be accounted for. On that basis, the impugned order was treated as unsustainable in fact and law.

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Issues: Whether the demand of Modvat credit and penalty under Rule 57-I could be sustained when the adjudicating authority had not verified receipt of inputs, actual availment of credit, the existence of stock, or the duty already paid on unusable inputs.

Analysis: The demand was founded on assumptions rather than a verified factual basis. The record showed no proper ascertainment whether the disputed chips had actually been received in the factory and whether credit had in fact been taken. A further demand was made in respect of inputs still lying in stock, although no demand is permissible merely because the inputs remained unused, and another component ignored the duty already paid on clearance of unusable chips. In these circumstances, the order was found to be unsustainable both on facts and in law.

Conclusion: The demand of Modvat credit and the penalty could not be sustained; the impugned order was set aside and the appeal was allowed.

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