Conditional exemption and deemed credit: department must prove non-duty-paid character before denying Modvat credit.

Waste and scrap covered by Notification No. 182/84 were treated as a conditional exemption, so the department had to prove with evidence that the goods were non-duty paid before denying deemed credit. A mere allegation in the show cause notice was insufficient, and on the facts no adequate evidence was produced to establish the non-duty paid character of the scrap. The denial of Modvat credit was therefore unsustainable, and the credit claim was upheld.

---

---

Issues: Whether waste and scrap covered by Notification No. 182/84 was a conditional exemption and, if so, whether the burden to prove that the goods were non-duty paid lay on the department for denying deemed credit.

Analysis: The notification was treated as a conditional exemption notification. In such a case, the department had to establish by evidence that the goods were of non-duty paid character before the deemed credit facility could be denied. Mere allegation in the show cause notice was insufficient. On the facts, no adequate evidence was produced to prove that the scrap was non-duty paid.

Conclusion: The appellants were entitled to deemed credit and the denial of Modvat credit was unsustainable.

Final Conclusion: The appeal succeeded and the credit claim was upheld.

Ratio Decidendi: Where exemption is conditional, the department bears the burden of proving that the goods are non-duty paid before denying deemed credit.

---