Modvat credit on returned duty-paid goods was upheld when reprocessing and duty-paid clearance were duly recorded.

Modvat credit was admissible on duty-paid goods returned by customers for reprocessing where a valid declaration had been filed, the receipts were recorded in statutory registers, and the goods were re-used in manufacture before being cleared again on payment of duty. The Revenue did not dispute these factual records. Credit could not be denied merely because the goods had earlier been rejected by buyers or because the procedure under Rule 173H was not followed, since the returned goods formed part of the declared input stream and the reprocessing was duly established. The disallowance was therefore unsustainable.

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Issues: Whether Modvat credit was admissible on goods earlier cleared on payment of duty and later received back from customers for reprocessing.

Analysis: The declaration under Rule 57G of the Central Excise Rules, 1944 had been filed and acknowledged, the receipt of the returned goods was recorded in the statutory registers, and the goods were again taken for manufacture and cleared on payment of duty. These facts were not controverted by the Revenue. Once the returned goods were shown as part of the declared input stream and their reprocessing and subsequent duty-paid clearance stood established, there was no basis to deny credit merely because the goods had originally been rejected by buyers or because the procedure under Rule 173H was not followed.

Conclusion: Modvat credit on the returned goods was admissible and the disallowance was unsustainable.

Ratio Decidendi: Where returned duty-paid goods are covered by a valid Modvat declaration, are duly accounted for, and are reprocessed for manufacture and cleared on payment of duty, credit cannot be denied on a mere procedural objection.

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