Deemed Modvat credit on brass scrap cannot be denied on assumptions; the Department must prove ineligibility.

Deemed Modvat credit on brass scrap could not be denied where the show cause notice did not specifically allege that the scrap consisted of broken machinery parts or other clearly recognisable non-duty paid goods. The Tribunal noted that the notice only questioned whether the scrap arose from conscious manufacturing activity, and the denial was based on assumptions about the nature of the goods without adequate evidentiary support. In a claim for conditional credit, the assessee satisfies the initial burden by seeking the benefit, and the Department must establish ineligibility. On that basis, the denial of deemed credit was held unsustainable and the credit was admissible.

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Issues: Whether deemed Modvat credit on brass scrap could be denied when the show cause notice did not allege that the scrap was broken machinery parts or otherwise clearly recognisable as non-duty paid goods.

Analysis: The claim for deemed credit was examined in the light of the show cause notice, the impugned order, and the earlier Tribunal view on similar brass scrap purchases. The notice only alleged that the scrap had not arisen from conscious manufacturing activity in the factory and did not specifically allege that the goods were broken machinery parts or unserviceable articles falling within the category of clearly non-duty paid goods. Where a conditional credit benefit is claimed, the assessee discharges the initial burden by claiming the benefit, and it is for the Department to establish that the goods are ineligible. The impugned denial rested on assumptions about the nature of the scrap without adequate evidentiary support.

Conclusion: The denial of deemed Modvat credit was unsustainable and the credit was admissible to the assessee.

Final Conclusion: The appeal succeeded and the order denying the credit was set aside.

Ratio Decidendi: Where the show cause notice does not specifically allege that scrap goods are clearly recognisable as non-duty paid, credit cannot be denied on assumptions about the nature of the scrap, and the Department must prove ineligibility.

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