Modvat credit on returned defective goods: Tribunal found conflicting authority and referred the legal question to the High Court.

Ambiguity existed on whether defective goods returned by customers and subjected only to further processing for removal of defects could qualify as inputs for Modvat credit. The Tribunal noted conflicting authority between cases allowing credit in some reprocessing contexts and cases denying credit where the activity amounted only to repair, re-making or reconditioning without manufacture. It also considered the special provisions governing receipt of defective goods for such processes. A question of law was therefore held to arise, and the matter was referred to the High Court.

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Issues: Whether the Department's reference application should be accepted and the question of law concerning Modvat credit on defective goods returned to the manufacturer be referred to the High Court.

Analysis: The Tribunal noted an ambiguity in the legal position on whether defective goods returned by customers and subjected only to further processing for removal of defects could qualify as inputs for Modvat credit. The rival lines of authority cited before it included decisions treating reprocessed returned goods as eligible in some contexts and decisions denying credit where the activity was merely repair, re-making, reconditioning, or similar treatment without manufacture. The Tribunal also noted the relevance of the special provisions dealing with receipt of defective goods for re-making, reconditioning, repairing, and similar processes.

Conclusion: The Tribunal held that a question of law arose requiring reference to the High Court and referred the stated question for its opinion.

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