Modvat credit on returned defective goods was admissible when covered by the assessee's declaration as inputs.

Returned defective final goods could be treated as inputs for Modvat purposes where they were covered by the assessee's declaration. The Tribunal relied on earlier identical and similar decisions involving the same appellant and noted that the declaration on record was accepted as covering defective sheets as inputs. Once such goods were declared and received back, there was no bar to treating them as inputs for credit. Modvat credit was therefore admissible, and the denial of credit and penalty could not be sustained.

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Issues: Whether Modvat credit was admissible on defective final goods returned by buyers and taken back as inputs when such goods were covered by the assessee's declaration.

Analysis: The Tribunal noted that in an earlier identical matter involving the same appellant, and in a similar later decision, credit had been held not deniable in such circumstances. It further found that the declaration on record was treated by the Commissioner as covering defective sheets as inputs, and once such goods were declared and received back, there was no bar to treating them as inputs for Modvat purposes.

Conclusion: Modvat credit was admissible, and the denial of credit and penalty could not be sustained.

Ratio Decidendi: Returned defective final goods, when covered by the assessee's declaration as inputs, can be treated as inputs for Modvat credit and credit cannot be denied on the ground that they were originally final products.

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