Modvat credit can offset duty on mixed-input steel ingots without one-to-one correlation between inputs and final product.

Modvat credit under Rule 57F(3) could be used to pay duty on steel ingots manufactured from a mix of duty-paid and non-duty-paid inputs, because the scheme does not require one-to-one correlation between particular inputs and the final product. Credit earned on duty-paid inputs was therefore not barred merely because some consignments of the same product were made using scrap received without duty or imported without countervailing duty. As the department did not establish that the ingots were produced exclusively from non-duty-paid scrap, the demand and penalty could not be sustained.

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Issues: Whether Modvat credit taken on duty-paid inputs could be utilised for payment of duty on steel ingots manufactured partly from duty-paid scrap and partly from scrap received without payment of duty under Chapter X procedure or imported without countervailing duty, and whether the demand and penalty could be sustained.

Analysis: Rule 57F(3) permits credit of duty on inputs to be utilised towards duty on final products in or in relation to the manufacture of which such inputs are intended to be used. The scheme does not require a one-to-one correlation between particular inputs and particular final products. Credit accumulated on account of duty-paid inputs is not barred from being used for the same final product merely because some consignments of that product were manufactured from non-duty-paid inputs. The record also showed that the assessee's steel ingots were manufactured from a combination of duty-paid and non-duty-paid inputs, and the department had not established that the final product batches were made exclusively from non-duty-paid scrap.

Conclusion: The assessee was entitled to utilise the Modvat credit under Rule 57F(3) for duty on the steel ingots, and the impugned demand and penalty could not stand.

Ratio Decidendi: Under the Modvat scheme, credit on duty-paid inputs may be used for duty on the same final product even when that product is manufactured with a mix of duty-paid and non-duty-paid inputs, because the scheme does not insist on a one-to-one correlation between inputs and output.

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