Deemed Modvat credit on steel scrap depends on whether the inputs are clearly recognisable as non-duty paid.

Rule 57G permitted deemed Modvat credit on specified steel inputs where the goods were not clearly recognisable as non-duty paid. The Government order dated 7-4-1986 allowed such credit for steel and articles thereof, and the later amendment dated 29-8-1986 operated prospectively. On the invoices, the goods were described as M.S. turning and boring scrap and were treated as steel scrap. An exemption notification that did not cover the relevant steel scrap could not be used to deny the credit. The material was therefore not clearly recognisable as non-duty paid, and deemed credit remained available.

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Issues: Whether deemed Modvat credit on steel scrap purchased from the market was admissible and whether the scrap was clearly recognisable as non-duty paid so as to deny credit.

Analysis: Rule 57G of the Central Excise Rules, 1944 permitted deemed credit on specified inputs in accordance with the Government's directions. The Government order dated 7-4-1986 allowed deemed credit for steel and articles thereof, subject to the condition that the inputs must not be clearly recognisable as non-duty paid. The later amendment dated 29-8-1986 was held to operate prospectively. The invoices showed the goods as M.S. turning and boring scrap, and the scrap was treated as steel scrap. The exemption notification relied on by the Department did not cover the relevant steel scrap as the tariff sub-headings were not reflected in the notification table for the exemption claimed.

Conclusion: The scrap was not clearly recognisable as non-duty paid, and the respondents were entitled to the deemed Modvat credit.

Final Conclusion: The appeal failed and the order allowing credit was left undisturbed.

Ratio Decidendi: Deemed credit cannot be denied unless the inputs are clearly recognisable as non-duty paid, and an exemption notification not covering the relevant goods cannot be used to disqualify such credit.

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