Modvat credit on returned goods upheld where reprocessing arrangement complied with Rule 57F(2) and no contravention was proved.

Modvat credit could not be denied merely because cleared goods were sent back and the finished product was re-received for use as input under Rule 57F(2). The arrangement between the factories was found to be within the scheme, and there was no prohibition on receiving the finished product back for reprocessing. Prior tribunal decisions supported that course, and the fact that the movement may have yielded a duty advantage did not by itself establish a contravention. On the facts found, no contravention by the appellant was proved, so credit remained admissible.

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Issues: Whether credit under the Modvat scheme could be denied on the ground that the same goods were sent back after clearance and the finished product was received again for use as input under Rule 57F(2).

Analysis: The arrangement between the two factories was held to be within the rules. There was no prohibition against a finished product being received back as an input for reprocessing, and prior tribunal decisions had recognised such a course. The fact that the movement of goods may have been structured to obtain duty advantage did not by itself establish a contravention. The alleged infraction, if any, was not attributed to the appellant in the manner suggested in the notice.

Conclusion: Credit could not be denied to the appellant on the facts found, and no contravention by the appellant was established.

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