Modvat credit on actual duty-paid inputs prevails over deemed credit when supporting documents and eligibility are established.

Rule 57A(1) permits Modvat credit on the actual duty paid on eligible inputs where duty-paying documents are available and the substantive conditions are met. Rule 57A(2) functions only as an alternative deemed-credit facility when such documents are unavailable; it does not limit the right to actual credit. The commentary also notes that the relevant notifications covered the inputs and final products, and that a Board circular supported actual credit for a composite mill. Accordingly, an assessee cannot be compelled to accept the less beneficial deemed credit when actual duty-paid credit is otherwise admissible.

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Issues: Whether, for yarn sent to job workers for manufacture of grey fabrics, the assessee was entitled to Modvat credit on the actual duty-paid basis under Rule 57A(1), or whether credit was restricted only to deemed credit at the notified lower rate under Rule 57A(2).

Analysis: Rule 57A(1) permitted credit of duty paid on eligible inputs, and the relevant notifications of 3-9-1996 specifically covered the inputs and final products involved. Rule 57A(2) operated only as an enabling provision to grant deemed credit where duty-paying documents were unavailable; it did not curtail the right to claim actual credit when such documents were produced and all conditions of Rule 57A(1) were satisfied. The Board circular also indicated that a composite mill could avail credit of duty paid on inputs on actual basis. In the absence of any prohibitory clause, the assessee could not be compelled to take the less beneficial deemed credit.

Conclusion: The assessee was entitled to Modvat credit on actual duty-paid basis, and the denial of such credit was unsustainable.

Ratio Decidendi: Where eligible inputs and duty-paying documents are available and the substantive conditions of the actual credit provision are fulfilled, a deemed credit scheme operates only as an alternative facility and cannot override the assessee's right to claim actual credit.

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