Deemed MODVAT credit on copper scrap depends on proof that the goods were clearly recognisable as non-duty-paid.

Copper scrap purchased from Ammunition Depots could not be denied deemed MODVAT credit unless the department proved with cogent evidence that the goods were clearly recognisable as non-duty-paid. The deemed credit scheme operates as a statutory presumption to ease documentary difficulties, and the exclusion clause applies only when the specific input is shown to have emerged from exempt or otherwise non-duty-paid manufacture. General contracts, official statements, and a subsequent depot letter were insufficient to establish the non-duty-paid character of the scrap in question. On that basis, the disallowance of deemed credit was not justified and the assessee was entitled to the credit claimed.

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Issues: Whether copper scrap purchased from Ammunition Depots was clearly recognisable as non duty paid so as to deny deemed credit under the MODVAT scheme, and whether the department had discharged the burden of proving such exclusion.

Analysis: The deemed credit facility is a statutory presumption intended to relieve difficulties in obtaining duty-paid documents, but the benefit can be denied only where the input is clearly recognisable as non duty paid. Copper scrap was an eligible input under the relevant notification, and the department therefore had to establish, with cogent evidence, that the specific scrap sold through the Ammunition Depots had in fact emerged from exempt or non-duty-paid manufacture. The record did not show what type of scrap was actually disposed of through the depots, and the materials relied on by the department, including general contracts and statements of officials, were insufficient to prove non-duty-paid character. The subsequent letter obtained from the depot also did not support the conclusion that the scrap in question was clearly non-duty-paid. In these circumstances, the exclusion clause could not be applied on assumption or presumption.

Conclusion: The disallowance of deemed credit was not justified, and the assessee was entitled to the credit claimed.

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