Deemed MODVAT credit for steel sheets upheld where the department failed to prove the inputs were non-duty paid.

Deemed MODVAT credit under Rule 57G(2) was available for specified inputs unless the goods were clearly recognisable as non-duty paid or charged to nil rate of duty. A conditional exemption notification for M.S. sheets did not, by itself, establish that steel sheets purchased from the open market were excluded from deemed credit. Because the department produced no evidence that the relevant exemption conditions were satisfied for the disputed goods, mere reliance on the notification was insufficient to deny credit. The deemed credit claim was therefore sustained and the challenge to the order was rejected.

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Issues: Whether deemed MODVAT credit on steel sheets purchased from the open market was admissible when the department relied on an exemption notification to contend that the goods were clearly recognisable as non-duty paid.

Analysis: The credit scheme under Rule 57G(2) permitted deemed duty-paid treatment for specified inputs, except where the inputs were clearly recognisable as non-duty paid or charged to nil rate of duty. The exemption notification relied upon by the department did not establish unconditional exemption in all cases, because the exemption for M.S. sheets depended on satisfaction of specified conditions relating to duty-paid inputs and absence of prior credit. The department did not produce evidence showing that those conditions were satisfied in respect of the sheets purchased by the respondent from the market. Mere reliance on the exemption notification, without proof that the goods were in fact non-duty paid or nil-rated, was insufficient to displace the deemed credit claim.

Conclusion: The deemed credit was admissible and the department failed to justify its denial; the appeals were rejected.

Final Conclusion: The order under challenge was upheld, and the respondent retained the benefit of deemed credit on the disputed steel sheets.

Ratio Decidendi: Where deemed credit is permitted for specified inputs, the department must prove with evidence that the inputs fall within an exclusion such as being clearly recognisable as non-duty paid or nil-rated; a conditional exemption notification by itself does not discharge that burden.

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