Deemed Modvat credit may extend to stock inputs and transitional clearances, but not to clearly non-duty-paid scrap.

Deemed Modvat credit under Rule 57G was treated as available for unwrought zinc/spelter lying in stock or in the manufacturing area, because "inputs in stock" was read broadly and the transitional relaxation in Rule 57H was held to apply harmoniously to the deemed credit scheme for final products cleared on or after 1-3-1986, subject to the stipulated duty-payment condition. Credit on zinc scrap received from the assessee's own plants was not available, since it was not properly raised at the hearing stage and, in any event, such scrap was clearly recognisable as non-duty paid and outside the scheme.

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Issues: (i) Whether deemed Modvat credit was admissible on unwrought zinc/spelter lying in stock or in the manufacturing area and on inputs used in final products cleared on or after 1-3-1986; (ii) Whether deemed credit was admissible on zinc scrap received from the appellant's own plants.

Issue (i): Whether deemed Modvat credit was admissible on unwrought zinc/spelter lying in stock or in the manufacturing area and on inputs used in final products cleared on or after 1-3-1986?

Analysis: The deemed credit order issued under Rule 57G was intended to treat specified inputs as duty paid, and the expression "inputs in stock" could not be confined only to material kept in the store room. Zinc spelter lying on the factory floor remained eligible to that extent. The transitional relaxation in Rule 57H, which operates notwithstanding Rule 57G, was held to extend to the deemed credit scheme as well, so that credit could also be allowed where the inputs were used in the manufacture of final products cleared on or after 1-3-1986, subject to the condition regarding duty payment after 31-1-1986.

Conclusion: The issue was answered in favour of the assessee, and the matter was remitted for working out consequential Modvat credit on the eligible quantity.

Issue (ii): Whether deemed credit was admissible on zinc scrap received from the appellant's own plants?

Analysis: The claim on zinc scrap was not raised before the appellate authority and was therefore not entertainable at the hearing stage without the requisite procedural application. In any event, scrap received from the assessee's own exempt factory was clearly recognisable as non-duty paid and did not fall within the deemed credit scheme.

Conclusion: The issue was decided against the assessee.

Final Conclusion: The appeal succeeded only to the limited extent of securing deemed credit on eligible unwrought zinc/spelter, while the claim relating to zinc scrap failed.

Ratio Decidendi: Transitional credit under Rule 57H can extend to a deemed credit scheme under Rule 57G where the statutory purpose and scheme require a harmonised construction, but material clearly recognisable as non-duty paid remains outside the benefit.

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