Deemed Modvat credit remains available for the covered period; later clarification cannot withdraw that benefit.

A deemed Modvat credit scheme in force on 7-4-1986 could not be curtailed for the relevant earlier period by a later clarificatory Ministry order dated 20-10-1987. Credit was therefore available on inputs purchased from the open market during the covered period. Where the Department alleged that the inputs were clearly recognisable as non-duty paid or chargeable to nil rate, the burden lay on the Revenue to prove that fact. As no such evidence was produced, the assessee's claim could not be denied and the denial of deemed Modvat credit was set aside.

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Issues: (i) whether the appellants were entitled to deemed Modvat credit on inputs purchased from the open market during the relevant period under the Government order dated 7-4-1986; (ii) whether the burden lay on the Department to establish that the inputs were clearly recognisable as non-duty paid or chargeable to nil rate of duty.

Issue (i): entitlement to deemed Modvat credit under the order dated 7-4-1986

Analysis: The credit was claimed for a period when the order dated 7-4-1986 was in force. The later Ministry order dated 20-10-1987 was only clarificatory and could not curtail the benefit already available under the earlier order. The denial of credit was based on treating the later clarification as controlling for an earlier period, which was not legally sustainable.

Conclusion: The appellants were entitled to the deemed Modvat credit for the period in dispute, and the later clarification could not defeat that entitlement.

Issue (ii): burden to prove that the inputs were clearly recognisable as non-duty paid or chargeable to nil rate of duty

Analysis: The record showed purchase of inputs from dealers in the open market, but there was no evidence produced by the Department that the goods were clearly recognisable as non-duty paid or nil-rated. In such cases of conditional exemption and mixed market availability of duty-paid and non-duty-paid goods, the burden to rebut the assessee's claim lies on the Revenue, not on the assessee.

Conclusion: The Department failed to discharge the burden, and the credit could not be denied on that ground.

Final Conclusion: The denial of deemed Modvat credit was set aside, and the appeals succeeded.

Ratio Decidendi: Where a deemed credit scheme is operative, a later clarificatory instruction cannot withdraw the benefit for an earlier covered period, and in cases involving conditional exemption and open-market goods, the Revenue must prove that the inputs were clearly recognisable as non-duty paid or nil-rated.

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