Deemed Modvat credit on conditionally exempt inputs upheld where the Department failed to prove exemption conditions were satisfied.

Deemed Modvat credit was admissible on inputs covered by exemption notifications where the Department failed to prove that the conditions for full exemption were actually satisfied. The Tribunal held that a conditional exemption notification does not, by itself, establish that goods purchased from the open market are non-duty paid or liable to nil rate of duty. Because no evidence showed that the notification conditions were met in respect of the inputs, the Department could not show that the goods were clearly recognisable as non-duty paid. The matter was treated as governed by earlier precedent, and the Revenue's challenge failed.

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Issues: Whether deemed Modvat credit was admissible on inputs covered by exemption notifications when the Department had not proved that the conditions of exemption were actually satisfied.

Analysis: The inputs were covered by exemption notifications granting full exemption only on fulfilment of specified conditions. The Tribunal followed its earlier view that a notification granting conditional exemption does not by itself establish that goods purchased from the open market are non-duty paid or chargeable at nil rate. Since the Department produced no evidence that the conditions attached to the notifications were satisfied in respect of the inputs, it failed to show that the goods were clearly recognisable as non-duty paid or charged to nil rate of duty. The case was treated as identical to the earlier precedent relied upon by the respondent.

Conclusion: Deemed Modvat credit was admissible, and the Revenue's challenge failed.

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