Deemed duty-paid inputs cannot justify denial of Modvat credit where the notification allows credit on that statutory basis.

Modvat credit could not be denied where the notification deemed the declared inputs to be duty-paid and allowed credit of the deemed duty to the manufacturer. Once the inputs were statutorily treated as duty-paid, the supplier's actual payment of duty could not be re-examined to refuse credit. The denial of credit on that ground was therefore impermissible, and the credit was rightly allowed.

---

---

Issues: Whether Modvat credit could be denied on the ground that the supplier had not actually paid duty on the inputs when the notification declared such inputs to be deemed duty-paid.

Analysis: The notification expressly provided that the duty of excise on the declared inputs shall be deemed to have been paid and that credit of the deemed duty so determined shall be allowed to the manufacturer of the final products. Once the inputs were statutorily treated as duty-paid under the notification, the actual payment of duty by the supplier could not be re-examined as a ground to deny credit.

Conclusion: Denial of Modvat credit on the ground of non-payment of duty by the supplier was not permissible, and the credit was rightly allowed.

---