Modvat credit on duty-paid job-work returns is allowable when the returned product forms part of the final manufacture.

Modvat credit was admissible on duty paid by a job worker where inputs were cleared under the prescribed job-work procedure, converted into an intermediate excisable product, and returned duty-paid for use in the assessee's final product. The Tribunal applied the principle that once the returned goods had suffered duty and formed part of the final product, credit on that duty, including any differential duty paid, could be taken. The Revenue's contention that credit had been wrongly availed twice was rejected because the procedure was complied with and no defect in the credit claim was shown.

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Issues: Whether Modvat credit was admissible to the assessee on duty paid by the job worker when inputs cleared under the prescribed procedure were processed into an intermediate product and returned on payment of duty.

Analysis: The goods were cleared under the procedure corresponding to Rule 57F(3), were assembled by the job worker into a new excisable product, and were returned to the assessee on payment of duty. The Tribunal applied the earlier view that once the returned goods had suffered duty and had become a component of the final product, the assessee was entitled to take Modvat credit, including any differential duty paid. The Revenue's objection that the credit was wrongly availed twice was rejected because the factual and legal setting showed compliance with the prescribed procedure and no infirmity in the grant of credit on the duty-paid returned product.

Conclusion: Modvat credit on the duty paid by the job worker was admissible, and the Revenue appeals failed.

Ratio Decidendi: Where inputs sent for job work emerge as a new duty-paid excisable product and are used as a component in the assessee's final product, credit of the duty paid on the returned product is allowable under the Modvat scheme.

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