MODVAT credit on inputs received through an intermediary remains admissible absent proof of non-duty-paid or ineligible goods.

MODVAT credit was held admissible on inputs received through another entity for job work where the assessee had filed the required declaration, cleared final products on duty payment, and produced a certificate showing the supplier had not taken credit. A circular dated 01.03.1989 recognised deemed MODVAT credit for inputs received by purchase or stock transfer, and the department failed to prove that the goods were non-duty-paid or otherwise ineligible. On that basis, reversal of credit was not sustainable and the claim succeeded.

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Issues: Whether MODVAT credit was admissible on inputs received by the assessee for job work when the inputs were not directly purchased by it but were supplied through another entity and whether the demand of credit reversal was sustainable.

Analysis: The assessee had filed the requisite declaration for MODVAT, cleared the final products on duty payment, and produced a certificate from the jurisdictional Superintendent showing that the supplying entity had not taken MODVAT credit on the inputs. The Board's circular dated 01.03.1989 clarified that deemed MODVAT credit was available for inputs received by way of purchase as well as stock transfer and directed that pending matters be decided accordingly. The department did not establish that the inputs were not open market purchases or that they were non-duty-paid or otherwise ineligible inputs. In the absence of contrary evidence, the credit could not be denied merely because the inputs were received through the supplying party rather than purchased directly by the assessee.

Conclusion: The MODVAT credit was admissible and the demand for reversal was not sustainable; the finding is in favour of the assessee.

Ratio Decidendi: Deemed MODVAT credit cannot be denied on the sole ground that inputs were received through stock transfer or another intermediary, where the inputs are not shown to be non-duty-paid and the departmental record does not establish ineligibility.

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