Deemed Modvat credit for re-rollers cannot be denied merely because supplier cleared scrap without duty payment.

Deemed Modvat credit under the 1-3-1994 order for re-rollers was available on inputs purchased from outside, because the order created a legal fiction treating such inputs as duty-paid without requiring proof of duty payment. The order did not contain any restriction excluding credit merely because the inputs were recognisable as non-duty paid or nil-rated, and no such limitation could be read into it. Accordingly, re-rollable scrap bought from a supplier did not lose credit eligibility simply because the supplier had cleared it without payment of duty, and the deemed credit remained available.

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Issues: Whether deemed Modvat credit under the order dated 1-3-1994 could be denied on the ground that the re-rollable scrap purchased by the assessee had been cleared without payment of duty by the supplier.

Analysis: The deemed credit order granted credit to re-rollers availing exemption under Notification No. 1/93 and created a legal fiction that inputs purchased from outside would be treated as duty-paid without production of documents evidencing duty payment. The order contained no restriction denying credit where the inputs were clearly recognisable as non-duty paid or nil-rated, and such a restriction could not be read into the provision. The scrap purchased from the supplier was treated as re-rollable material obtained from outside and the absence of duty payment by the supplier, by itself, did not defeat the benefit intended by the order.

Conclusion: The deemed Modvat credit was rightly availed and could not be disallowed on the ground relied upon by the department.

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