Deemed Modvat credit for market scrap turns on Revenue proof that the inputs were clearly recognisable as non-duty paid goods.

Deemed Modvat credit on brass and copper scrap purchased from the market was intended to address the difficulty of proving duty payment on scrap with uncertain origin. Credit could be denied only where the Revenue established that the inputs were clearly recognisable as non-duty paid goods, and the burden of proof lay on the Revenue rather than the assessee. On that basis, the department's failure to discharge the burden meant denial of credit was not justified, and the contrary authorities relied on by the Revenue were treated as inapplicable on the facts.

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Issues: Whether deemed Modvat credit on brass copper scrap purchased from the market could be denied on the footing that the inputs were clearly recognisable as non-duty paid goods and whether the burden to establish non-duty payment lay on the assessee or the Revenue.

Analysis: Deemed credit under the Modvat scheme was intended to meet the practical difficulty of proving duty payment on market scrap, where traceability of origin is often impossible. The concession itself contemplated that some scrap might not have suffered duty, and denial was permissible only if the inputs were clearly recognisable as non-duty paid. On that reasoning, the factual burden to establish that the goods fell within the denial category rested on the Revenue. The earlier authorities cited by the Revenue were held inapplicable on the facts, and the Commissioner's view that the department had not discharged its burden was accepted.

Conclusion: The denial of deemed Modvat credit was not warranted, and the Revenue's challenge failed.

Ratio Decidendi: Where deemed Modvat credit is allowed for market-purchased scrap, it can be denied only if the Revenue establishes that the inputs were clearly recognisable as non-duty paid; the burden of proof lies on the Revenue.

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