MODVAT credit on inputs sent to a job worker may not be denied if identity and movement of goods are properly proved.

MODVAT credit on inputs sent directly to a job worker's premises was not to be denied merely because the inputs were not first received in the assessee's factory, since the scheme is designed to prevent cascading duty and common trade practice could not defeat credit. However, the assessee had to prove by evidence the identity of the inputs at the job worker's premises and the receipt back of the intermediate goods manufactured from them. The matter therefore turned on factual verification of movement and traceability rather than a literal rejection of the receipt requirement.

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Issues: Whether MODVAT credit on inputs sent directly to a job worker's premises could be denied merely because the inputs were not first received in the assessee's factory, and whether the assessee had to establish the identity and movement of the inputs through the job worker before credit could be allowed.

Analysis: The relevant scheme was considered under Rule 57A, Rule 57F(2) and Rule 57G(2) of the Central Excise Rules, together with Notifications No. 214/86 and No. 351/86 dated 20-6-1986. The reasoning accepted that the MODVAT scheme is intended to relieve cascading duty burden and that the common trade practice of sending inputs directly to job workers cannot, by itself, disentitle credit. At the same time, the assessee must establish, by necessary evidence, the identity of the inputs received at the job worker's premises and the receipt back of the intermediate goods manufactured therefrom. The matter therefore required factual verification rather than rejection on a purely literal construction of the receipt requirement.

Conclusion: MODVAT credit was not held to be straightaway inadmissible on the ground that the inputs were sent directly to the job worker, but the assessee was required to prove identity and movement of the inputs; the matter was remanded for reconsideration and verification.

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