Modvat credit requires duty-paid inputs; deemed credit cannot apply where no excise duty was actually paid.

Modvat credit under Rule 57A was held unavailable for inputs cleared under gate passes showing nil duty, because the scheme applies only to duty-paid inputs. Deemed credit under Rule 57G(2) is meant to address cases where duty has in fact been paid but documentary proof is lacking; it does not extend to goods on which no excise duty was paid at all. Notifications supporting deemed credit could not override this basic requirement, so credit was denied.

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Issues: Whether Modvat credit was admissible on inputs received under gate passes showing nil rate of duty and on which no excise duty had actually been paid.

Analysis: The inputs were received under gate passes expressly showing nil duty, establishing that the inputs themselves had not suffered excise duty. The scheme of Modvat credit under Rule 57A rests on duty-paid inputs, and the deemed credit mechanism under Rule 57G(2) is intended to relieve users who cannot produce documentary proof of duty payment where duty has in fact been paid. It does not extend credit to inputs on which no duty was paid. The reliance placed on deemed credit and related notifications could not overcome the basic requirement that the inputs must have suffered duty.

Conclusion: Modvat credit was not admissible; the issue is decided against the assessee and in favour of the Revenue.

Ratio Decidendi: Deemed credit under the Modvat scheme cannot be allowed where the inputs themselves were cleared without payment of duty, because the scheme operates only in respect of duty-paid inputs.

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