Deemed Modvat credit on scrap requires proof of non-duty-paid clearance; a general exemption notification is not enough.

Deemed Modvat credit on aluminium waste and scrap cannot be refused on a mere presumption that the inputs were non-duty-paid. The stated principle is that denial of credit requires the department to establish, for the specific goods, that they were cleared without payment of duty and were ineligible under the scheme; the existence of a general exemption notification is not enough by itself. The scheme also does not add any separate condition based on the shape or size of scrap. On this reasoning, the assessee was entitled to the credit benefit and the departmental challenge failed.

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Issues: Whether deemed Modvat credit on aluminium waste and scrap was rightly denied on the footing that the goods were non-duty-paid and that invoices from traders did not establish payment of duty.

Analysis: The order granting deemed credit under the Ministry's scheme proceeded on the presumption that scrap in the market ordinarily carries the burden of duty, and denial of credit required proof that the inputs were clearly non-duty-paid. Mere reliance on the existence of an exemption notification, without showing that the particular goods satisfied the conditions of exemption and were in fact cleared without payment of duty, was insufficient. The scheme did not impose any additional precondition based on shapes or size of scrap, and the departmental case rested on assumptions rather than evidence establishing ineligibility under the credit scheme.

Conclusion: The denial of deemed Modvat credit was unsustainable and the assessee was entitled to the benefit.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Deemed Modvat credit cannot be denied on mere presumption or on the basis of a general exemption notification unless the department establishes, for the specific goods, that they were cleared without payment of duty and were clearly non-duty-paid.

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