Transitional MODVAT credit allowed for inputs received before declaration where scrap arose from ship-breaking operations.

Rule 57H was applied as a transitional MODVAT provision to extend credit where inputs were received before the dated acknowledgement of the Rule 57G declaration. The expression "immediately before" was construed as meaning the period preceding the declaration date, so inputs used in manufacturing final products cleared on or after 1 March 1987 could qualify. On the facts, the ship received for breaking was treated as the relevant input and the resulting scrap as the final product, so credit could not be denied merely because some clearances had begun before the declaration was filed. MODVAT credit was therefore admissible for the disputed clearances.

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Issues: Whether MODVAT credit under the transitional provisions of Rule 57H could be allowed in respect of scrap cleared before filing the declaration under Rule 57G, where the ship had been received for breaking and used as an input in the manufacture of scrap.

Analysis: Rule 57H was treated as a transitional provision intended to extend relief even after the MODVAT scheme had come into force. The expression "immediately before" was read as meaning "preceding the date", so that inputs received before the dated acknowledgement of the Rule 57G declaration could still qualify if they were used in the manufacture of final products cleared on or after 1 March 1987. On the facts, the ship brought for breaking was regarded as the relevant input, and the scrap generated from it was the final product. The benefit could therefore not be denied merely because clearance had commenced before the declaration was filed.

Conclusion: MODVAT credit under Rule 57H was admissible for the disputed clearances, and the assessee was entitled to the benefit.

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