Modvat credit utilisation on final products without one-to-one input correlation was upheld where no statutory prohibition existed.

Modvat credit on duty-paid scrap could be used to pay duty on steel ingots manufactured from non-duty-paid inputs, because Rule 57F(3) allows credit on inputs to be applied against duty on the relevant final products without a one-to-one correlation. The scheme's purpose is to prevent cascading of duty, and excess accumulated credit may be utilised where the duty on inputs exceeds the duty on final products. In the absence of any statutory requirement for separate accounts for different categories of scrap, the departmental objection to such utilisation was unsustainable, and the disallowance of credit was set aside with consequential relief.

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Issues: Whether Modvat credit earned on duty-paid scrap could be utilised for payment of duty on steel ingots manufactured out of non-duty-paid inputs, and whether the department could insist on separate accounts or deny such utilisation.

Analysis: Rule 57F(3) permits credit of duty allowed on inputs to be utilised towards payment of duty on final products in or in relation to the manufacture of which such inputs are intended to be used. The rule does not require a one-to-one correlation between inputs and final products, and the objective of the Modvat scheme is to avoid cascading of duty. The Tribunal further relied on the Board's circular issued under Section 37 of the Central Excises and Salt Act, 1944, which stated that excess credit accumulated because the duty on inputs exceeded the duty on final products could be used for payment of duty on the same final products even where those products were manufactured out of non-duty-paid inputs. In the absence of any legal provision requiring separate accounts for indigenously procured and imported scraps, the departmental objection was unsustainable.

Conclusion: The utilisation of excess Modvat credit was held to be permissible, and the appeal was allowed in favour of the assessee.

Final Conclusion: The demand disallowing the credit was set aside and the assessee was granted consequential relief.

Ratio Decidendi: Under the Modvat scheme, credit of duty on inputs may be used against duty on the same final products even where there is excess accumulation and no one-to-one correlation between inputs and outputs, unless a specific statutory prohibition exists.

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