Deemed Modvat credit denied for scrap recognisable as non-duty paid under the governing order.

Deemed Modvat credit was unavailable where the department established that scrap purchased from rolling mills was clearly recognisable as non-duty paid under the Government of India order dated 7-4-1986. The note distinguishes cases involving exempted goods and nil-rate treatment, but states that on these facts the scrap was generated in the course of manufacture, cleared under GP-1, and therefore proved to be non-duty paid. The legal effect is that inputs fitting that description fall outside deemed credit, and the departmental denial of credit is sustained when the burden of proof is discharged.

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Issues: Whether the scrap purchased from rolling mills was clearly recognisable as non-duty paid and, if so, whether deemed Modvat credit was unavailable under the Government of India order dated 7-4-1986.

Analysis: The governing order denied deemed credit where inputs were clearly recognisable as non-duty paid or charged to nil rate of duty. The dispute turned on whether the department had established the non-duty paid character of the scrap purchased from rolling mills. The order distinguished earlier decisions where goods exempted under a notification were not treated as nil rated, but on the facts here the scrap was found to have been generated in the course of manufacturing activity and cleared under GP-1. On that basis, the department was held to have discharged the burden of proving that the inputs were clearly recognisable as non-duty paid.

Conclusion: The scrap was held to be clearly recognisable as non-duty paid, and the denial of deemed Modvat credit was upheld.

Final Conclusion: The appeal failed and the departmental demand and denial of credit were sustained.

Ratio Decidendi: Where the department establishes on the facts that inputs purchased from rolling mills are clearly recognisable as non-duty paid, deemed Modvat credit is not admissible under the governing order.

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