Conditional exemption does not by itself bar deemed Modvat credit; the department must prove inputs were actually non-duty-paid.

Deemed Modvat credit on inputs covered by conditional exemption notifications was held admissible where the department failed to prove that the goods were actually cleared from a non-duty-paid stream. The Tribunal applied its earlier coordinate-bench view that conditional exemption does not, by itself, make inputs non-duty-paid, and that a factual enquiry is required before credit can be denied. A contrary Regional Bench order was not treated as sufficient to override the settled line of decisions, and a later amendment to the Ministry's order was held inapplicable to the period in dispute. The orders allowing deemed credit were sustained and the departmental appeals failed.

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Issues: Whether deemed credit under the Modvat scheme was admissible in respect of inputs which were covered by conditional exemption notifications and were not accompanied by duty-paying documents.

Analysis: The inputs were admittedly covered by conditional exemption notifications and the period in dispute was prior to the later amendment relied upon by the department. The Tribunal noted that earlier decisions of its coordinate benches had already held that conditional exemption does not by itself make the goods non-duty-paid, and that the department must establish by enquiry that the particular goods came from a non-duty-paid stream before denying deemed credit. The departmental reliance on a contrary Regional Bench order was found insufficient to displace the earlier consistent view, and the subsequent amendment to the Ministry's order was held inapplicable to the period in question.

Conclusion: Deemed credit was admissible, and the departmental objection failed.

Final Conclusion: The orders allowing deemed credit were sustained and the departmental appeals were rejected.

Ratio Decidendi: Where inputs are covered by conditional exemption, non-duty-paid character cannot be presumed merely from the exemption; the burden lies on the department to prove that the goods were actually cleared without duty before denying deemed credit.

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