Deemed MODVAT credit on third-party inputs was allowed where the goods were not clearly recognisable as non-duty paid.

Deemed MODVAT credit was admissible on inputs received from third parties and not purchased from the market, because Rule 57G of the Central Excise Rules, 1944 did not permit denial of credit on that ground alone. Government instructions and the trade notice clarified that deemed credit applied to inputs purchased or otherwise received by the manufacturer unless they were clearly recognisable as non-duty paid or chargeable to nil rate of duty. As the Department had not alleged in the notice that the inputs were clearly recognisable as non-duty paid, and the other conditions were found satisfied, the credit claim succeeded.

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Issues: Whether deemed MODVAT credit was available on inputs received from third parties and not purchased from the market, where the inputs were not shown to be clearly recognisable as non-duty paid or chargeable to nil rate of duty.

Analysis: On a plain reading of Rule 57G of the Central Excise Rules, 1944, there was no warrant for denying deemed credit merely because the inputs were not purchased from the market. The statutory instructions issued by the Government of India and the trade notice clarified that deemed MODVAT credit should be permitted on all inputs whether purchased or otherwise received by the manufacturer, unless such inputs were clearly recognisable as non-duty paid or chargeable to nil rate of duty. The Department had not alleged in the show cause notice that the inputs were clearly recognisable as non-duty paid, and the lower appellate authority had also found that the other conditions were satisfied.

Conclusion: Deemed MODVAT credit was admissible to the appellant on the inputs in question.

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