Deemed Modvat credit on delivery-challan inputs upheld for a small scale manufacturer, subject to verification of prior credit use.

A licensed small scale manufacturer receiving steel inputs under delivery challans for manufacture on job work basis was entitled to deemed Modvat credit, because the Board's clarification and trade notice allowed credit on inputs received otherwise than by purchase unless they were clearly identifiable as non-duty paid or nil-rated. The mere movement of materials through other hands did not, by itself, defeat credit. The department could verify, however, that no prior Modvat credit had already been taken on the same inputs.

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Issues: Whether a licensed small scale manufacturer was entitled to deemed Modvat credit on steel inputs received under delivery challans otherwise than by purchase, including inputs received for job work.

Analysis: The appellants were a licensed small scale unit operating under Notification No. 175/86 and received inputs under delivery challans for use in manufacture on job work basis. The relevant Board's clarification and trade notice recognised deemed credit for inputs received otherwise than by purchase, unless the inputs were clearly identifiable as non-duty paid or nil-rated. The objection based on the manner in which the materials moved through other hands did not, by itself, disqualify the appellant from credit, though the department was given liberty to verify that credit had not already been taken at any prior stage in the chain of movement.

Conclusion: The appellant was entitled to deemed Modvat credit on the inputs received under delivery challans, subject to departmental verification that no prior Modvat credit had been availed on the same inputs.

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