Deemed Modvat credit denied for clearly non-duty-paid bazar scrap; reversed input credit must be excluded from demand.

Deemed Modvat credit was unavailable for iron and steel scrap purchased from the open market where the inputs were clearly recognisable as non-duty paid, because the governing order under the second proviso to Rule 57G restricted credit to inputs not so identifiable; the demand was therefore upheld on that point. Any amount already reversed in respect of inputs cleared on sale after permission could not be retained in the demand, subject to verification of the record, and limited relief was available to that extent.

---

---

Issues: (i) whether deemed Modvat credit was admissible on iron and steel scrap purchased from the open market which was clearly recognisable as non-duty paid; (ii) whether the amount already reversed in respect of inputs cleared on sale was liable to be excluded from the demand.

Issue (i): Whether deemed Modvat credit was admissible on iron and steel scrap purchased from the open market which was clearly recognisable as non-duty paid.

Analysis: The governing order issued under the second proviso to Rule 57G permitted deemed credit only where the inputs were not clearly recognisable as non-duty paid. The later clarification and the Larger Bench view made it clear that bazar scrap, when clearly recognisable as non-duty paid, did not qualify for deemed credit. The scrap in question was market-purchased waste and scrap and no proof of duty payment was produced.

Conclusion: Deemed Modvat credit was not admissible on the scrap and the demand was upheld on merits.

Issue (ii): Whether the amount already reversed in respect of inputs cleared on sale was liable to be excluded from the demand.

Analysis: The assessee asserted that part of the inputs had been sold after obtaining permission and that the credit taken on that quantity had already been debited in the statutory account. The demand had nevertheless included that amount, and the record showed that this plea required verification.

Conclusion: The assessee was entitled to exclusion of the reversed amount, subject to verification.

Final Conclusion: The appeal failed on the main issue of admissibility of deemed credit on bazar scrap, but limited relief was available in respect of the quantity already reversed and cleared after permission.

Ratio Decidendi: Deemed credit under the relevant Modvat scheme is unavailable for inputs that are clearly recognisable as non-duty paid, and any amount already reversed for goods lawfully cleared cannot be retained in the demand.

---