Deemed Modvat credit on steel scrap from the open market was allowed where non-duty-paid status was not proved.

Deemed Modvat credit on steel waste and scrap purchased from the open market was admissible because Notification No. 208/83-C.E. exempted only waste and scrap of iron under sub-heading 7203.10, not steel scrap under 7203.20, and mere classification under heading 7203 did not by itself justify denial. The Department had to prove with evidence that the goods were clearly recognisable as non-duty paid, and it failed to discharge that burden. The same reasoning applied to the transitional claim under Rule 57H, so denial of credit could not be sustained.

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Issues: Whether deemed Modvat credit was admissible on steel waste and scrap purchased from the open market, and whether the Department had discharged the burden of proving that the goods were clearly recognisable as non-duty paid, including the claim made under Rule 57H.

Analysis: During the relevant period, Chapter 72 of the Central Excise Tariff Act, 1985 distinguished between waste and scrap of iron under sub-heading 7203.10 and waste and scrap of steel under sub-heading 7203.20. Notification No. 208/83-C.E. exempted waste and scrap of iron under 7203.10, but did not cover waste and scrap of steel under 7203.20. The mere fact that the goods fell within heading 7203 was therefore insufficient to deny credit. The Department was required to show, on evidence, that the goods were clearly recognisable as non-duty paid. As the goods were purchased from the open market and no such evidence was produced, the burden of proof was not discharged. The same reasoning applied to the transitional claim under Rule 57H.

Conclusion: The deemed credit was admissible, and the denial of credit could not be sustained either for the main claim or for the claim under Rule 57H.

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