Modvat credit on scrap inputs fails where invoices do not show duty payment and goods are clearly non-duty paid.

Modvat deemed credit was unavailable for scrap inputs bought from railway auctions and the open market where the documents did not show duty payment and the goods were clearly recognisable as non-duty paid. The applicable principle was that credit covers only inputs whose duty-paid character is established; goods that are exempt, or otherwise not shown to be duty paid, fall outside the scheme. On the stated facts, the challans and invoices did not evidence duty payment, so the disputed scrap inputs were treated as ineligible for credit and the disallowance was upheld.

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Issues: Whether Modvat credit was admissible on scrap inputs purchased from railway auctions and the open market, where the documents did not show payment of duty and the goods were clearly recognisable as non-duty paid.

Analysis: The appeal concerned deemed credit under the Modvat scheme. The controlling question was whether the inputs fell within the category of stocks on which credit could be taken, or whether they were excluded because they were clearly recognisable as non-duty paid. The Tribunal applied the settled position that the expression covers inputs on which duty has not in fact been paid for any reason, including goods exempt from duty or goods whose duty-paid character is not established. On the facts, the railway auction scrap and the other scrap inputs were supported by challans and invoices which did not show payment of duty, and the materials were treated as clearly recognisable as non-duty paid.

Conclusion: Modvat credit was not admissible on the disputed scrap inputs and the disallowance was upheld.

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