Modvat credit on duty-paid steel inputs cannot be curtailed by treating them as scrap at the receiving end.

Modvat credit could not be restricted by recharacterising duty-paid steel pipes, hot rolled sheet cuttings and plate cuttings as M.S. scrap when they were received as excise-paid inputs. The fact that the goods were the suppliers' final products did not justify denial of credit in the hands of the manufacturer using them as inputs. The restriction on credit was therefore unsustainable, and credit was allowable on the duty paid on the goods as received.

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Issues: Whether Modvat credit on duty-paid steel pipes, hot rolled sheet cuttings and plate cuttings used for manufacture of M.S. ingots could be restricted to the duty payable on M.S. scrap.

Analysis: The inputs had been received after payment of central excise duty as steel pipes, hot rolled sheets and plates. On those facts, there was no justification to recharacterise them as M.S. scrap for the limited purpose of restricting credit. The ground that the inputs were final products in the hands of the suppliers did not warrant denial of credit in the hands of the manufacturer using them as inputs.

Conclusion: The restriction on Modvat credit was unsustainable and the assessee was entitled to credit on the duty paid on the goods as received.

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