Modvat credit on returned aluminium extrusions raised a genuine question of law fit for reference to the High Court.

Modvat credit was claimed on duty paid at first clearance of aluminium extrusions that were later rejected by customers and returned. The applicants contended that the returned goods were further processed into fresh aluminium sections and treated as inputs, while the Department argued that no new manufacture resulted and that the goods fell only under the returned-goods procedure. The document notes two lines of authority: one allowing credit where rejected goods cease to be marketable as final products and undergo fresh manufacturing, and another confined to mere reconditioning and re-clearance. Because the competing decisions created a genuine legal controversy, the question of law was held fit for reference to the High Court.

---

---

Issues: Whether the applicants were entitled to Modvat credit on duty paid at the time of first clearance of aluminium extrusions when the goods were later rejected by customers and returned, and whether the question framed on such entitlement was a fit question of law for reference to the High Court.

Analysis: The returned aluminium extrusions were claimed to have been used as inputs for manufacture of fresh aluminium sections after further processing, while the Department maintained that no new manufacture emerged and that the goods could only be dealt with under the procedures relating to returned goods. The order noted that the Tribunal decisions relied upon by the applicants treated rejected goods returned after clearance as inputs where they ceased to be marketable as final products and were subjected to fresh manufacturing processes, whereas other decisions cited for the Department concerned mere reconditioning and re-clearance. In view of these differing lines of authority, the issue was held to involve a real controversy on a question of law.

Conclusion: The question of law was properly referable, and the applicants succeeded in obtaining reference of the Modvat credit issue to the High Court.

---