Modvat credit on open-market lead scrap denied where actual duty payment was absent and deeming fiction could not apply.

Deemed Modvat credit under Rule 57G(2) was held inadmissible on lead scrap and waste bought in the open market, because the material was found to be bazar scrap sourced from dealers, traders and public offices rather than scrap arising from manufacture. On the facts recorded, the goods had not suffered duty in fact or in law, and the deeming provision could not treat goods that were never duty paid as duty paid. Applying the larger Bench view on the Modvat scheme, actual payment of duty was treated as essential, so credit was correctly denied.

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Issues: Whether deemed Modvat credit under Rule 57G(2) of the Central Excise Rules, 1944 was admissible on lead scrap and waste purchased in the open market, and whether such material was clearly recognisable as non-duty paid.

Analysis: The material was found to be broken, discarded and worn-out lead scrap sourced from dealers, traders and public offices, and not scrap generated in the manufacture of lead articles by any manufacturer. On the facts recorded, the goods were bazar scrap and had not suffered duty in fact or in law. The deeming provision for Modvat credit does not operate to treat goods which never suffered duty as duty paid. The larger Bench ruling on the scheme of Modvat credit was applied to hold that actual payment of duty is pivotal and that credit cannot be taken where duty need not have been paid and was not paid.

Conclusion: Deemed Modvat credit was not admissible, and the denial of credit was justified.

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