Modvat credit on returned duty-paid goods upheld where re-testing and re-clearance supported treatment as manufacture.

Modvat credit was considered admissible on rejected duty-paid goods received back by the assessee, where the goods were again tested and inspected before being cleared afresh on payment of duty. The analysis treated the reworking and re-clearance of the returned goods as a manufacturing process for excise purposes, and the fact that duty had already been paid on the original goods did not justify denial of credit. The earlier Tribunal view on credit for returned duty-paid goods was followed, and the denial of credit was set aside.

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Issues: Whether Modvat credit was admissible on rejected duty-paid goods received back by the assessee and subjected to further testing and inspection before being cleared again on payment of duty.

Analysis: The goods received back were duty-paid goods originally manufactured by the assessee. The assessee's case was that the returned goods were again tested and inspected before re-clearance on payment of duty. In such a situation, the process was treated as involving manufacture for excise purposes, and there was no reason to deny credit merely because the goods had earlier borne duty. The legal position on admissibility of Modvat credit on returned duty-paid goods was supported by the Tribunal's earlier view relied upon in the matter.

Conclusion: Modvat credit was held admissible and the denial of credit was set aside.

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