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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether deemed credit under the Modvat scheme was admissible on old and used iron and steel scrap purchased from the market when the scrap was clearly recognisable as non-duty paid or as goods not liable to central excise duty.
Analysis: The second proviso to Rule 57G(2) of the Central Excise Rules, 1944 and the Ministry's order dated 07-04-1986 permitted deemed credit only for inputs that had actually suffered duty, while denying it where the inputs were clearly recognisable as non-duty paid or charged to nil rate of duty. The scrap in question was found to consist of discarded household utensils, cycle parts, agricultural implements and similar used articles obtained from the open market or kabaris. Such items were not products of manufacture and were outside the scope of excisable goods. The subsequent Ministry's clarification dated 29-09-1986 also confirmed that bazar scrap of this kind was not entitled to deemed credit. The purpose of the deemed credit scheme was to dispense with duty-paying documents where duty had in fact been paid, not to treat wholly non-duty-paid material as duty-paid inputs.
Conclusion: Deemed credit was not admissible on the impugned scrap and the Revenue's objection succeeded.
Ratio Decidendi: Deemed credit under Rule 57G(2) is available only to inputs on which duty was actually paid, and it cannot be extended to scrap that is clearly recognisable as non-duty paid or to goods that are not excisable at all.
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