Modvat deemed credit burden rules place proof of non-duty payment on the Department in conditional exemption cases.

In a conditional exemption context under the Modvat scheme, the deemed credit proviso to Rule 57G(2) was construed as dispensing with documentary proof of duty payment where duty is otherwise assumed to have been paid. The expression covering goods as non-duty paid was held to include goods on which duty has not been paid for any reason, so once the assessee asserts duty payment, the Department must establish that the goods fall within the non-duty paid category. The burden of proving non-duty payment therefore lies on the Department, not the assessee, and the reference application was rejected.

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Issues: Whether, in the case of conditional exemption and deemed Modvat credit, the burden lies on the Department or the assessee to prove that the goods are duty paid or non-duty paid.

Analysis: The reference turned on the construction of the second proviso to Rule 57G(2) of the Central Excise Rules and the Government order dated 7-4-1986. The decision reasoned that the Modvat scheme is premised on inputs on which duty has actually been paid, and the deemed credit proviso was intended only to dispense with documentary proof where duty payment is otherwise assumed to have occurred. It was further held that the expression indicating goods as being non-duty paid covers goods on which duty has not been paid for any reason, and in a conditional notification the Department must establish that the goods fall within that category once the assessee asserts duty payment.

Conclusion: In a conditional exemption case, the burden of proving that the goods are non-duty paid lies on the Department, not on the assessee. The reference application was therefore rejected.

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