Modvat credit on scrap inputs cannot be denied for nomenclature differences where duty-paid receipt is evidenced.

Modvat/Cenvat credit cannot be denied merely because invoices describe the scrap as M.S. sheet offcuts or trimmings while the goods received are described differently, where the evidence shows receipt of the duty-paid quantity and no duty discrepancy. Credit remains available for inputs received in the factory through registered dealers, and the price paid to the dealer does not affect eligibility. If dealers' sorting, bundling, or segregation of scrap amounts to manufacture, that activity must be taxed separately rather than used to deny credit to the recipient. On these principles, the proposed duty demand, interest, and penalties were held unsustainable.

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Issues: Whether Modvat/Cenvat credit could be denied and penalties sustained on the ground that the scrap described in the invoices as M.S. sheet offcuts/trimmings differed in nomenclature from the scrap actually received, and that the dealers had sorted, bundled, or segregated the scrap before onward sale.

Analysis: The credit scheme permits availment of duty paid credit on inputs received in the factory, including through registered dealers and through more than one dealer stage. The price paid to the dealer was held to be irrelevant to eligibility for credit. The Tribunal found that the evidence did not show short receipt of the quantity covered by the duty paid documents, nor any duty quantum discrepancy. It accepted that offcuts of M.S. sheets and CRCA scrap were only different descriptions of the same type of scrap, and that a mere change in nomenclature between commercial invoices and Modvat documents could not justify denial of credit. The Tribunal further held that if the dealers' segregation or bundling activity amounted to manufacture, the proper course was to bring that activity to tax, not to deny credit to the recipient on the invoices issued by registered dealers.

Conclusion: The denial of credit, duty demand, interest, and penalties on the assessee and the dealers was unsustainable, and the assessee succeeded.

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