Transitional MODVAT credit can cover duty-paid inputs in semi-processed goods, subject to verification of records and duty payment.

Transitional MODVAT credit under Rule 57H was construed to extend to duty-paid inputs retained in the factory not only as such, but also when embedded in semi-processed goods or goods under process. The rule was not to be read narrowly, provided the duty-paid character of the inputs and their nexus with the goods under process were established. The availability of credit therefore depended on verification of duty payment documents and factory records, leaving factual confirmation to the assessing authority. On that basis, the assessee's entitlement to transitional credit was upheld in principle.

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Issues: Whether transitional MODVAT credit under Rule 57H was admissible in respect of duty-paid inputs contained in semi-processed goods or goods under process.

Analysis: The object of transitional credit was to extend the benefit of duty paid on inputs received before the declaration, and the rule could not be read narrowly so as to confine credit only to inputs lying as such in stock. Inputs retained in the factory in semi-processed condition could also fall within the ambit of the rule, provided the Assistant Collector was satisfied about the duty-paid nature of the inputs and their nexus with the goods under process. At the same time, factual verification of duty payment documents and records was necessary to confirm that the inputs contained in the semi-processed goods were duly covered.

Conclusion: The transitional credit was held admissible in principle for inputs contained in semi-processed goods, subject to verification of duty-paid documents and records.

Final Conclusion: The Revenue's challenge failed, and the assessee's entitlement to transitional credit was upheld in principle, leaving only factual verification to the assessing authority.

Ratio Decidendi: Rule 57H for transitional credit must be construed to cover duty-paid inputs retained in the factory not only as such but also in semi-processed form, where their duty-paid character is established on verification.

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