Per Shri V.P. Gulati:

The issue in the appeal relates to grant of MODVAT credit in respect of goods which were earlier received by the respondents under rule 57F (2) from the supplier of the raw materials for job work to be done and subsequently in respect of which duty was required to be paid as the respondents did not return the goods received by them after the job work to the principal supplier of the raw materials due to subsequent circumstances.

2. The Ld. Original authority did not give the benefit of MODVAT credit to the respondents while asking the supplier of raw material M/s. S & S Power Switch Gears Ltd., in the present case to reverse the MODVAT credit in respect of goods which were sent by them to the respondents.

3. Consequent on payment of duty on the inputs which were received by the respondents from M/s. S&S, the respondent took MODVAT credit based on the certificate issued by the Inspector of the range concerned and which was subsequently backed-up by the certificate issued by the Superintendent concerned. The Ld. Original authority has taken objection to the validity of certificate issued by the Inspector. The Ld. Original authority, in this context, while denying the benefit of MODVAT credit to the respondents has held as follows :-

"From the above, I am inclined to observe the following :-

(i) if any inputs sent for job work under rule 57F (2) (now 57F (3)) are not received back into the factory, Modvat credit taken on such inputs must be expunged in terms of Rule 57I (2). Therefore, the amount of Rs. 3,14,999.07 paid by M/s. S&S pertains to the Modvat credit taken on the inputs cleared to the assessee in semiprocessed condition under 57F (2).

I am inclined to infer that the goods received by the assessee for job work were in semiprocessed condition since 57F (2) does not provide for clearance for job work of finished goods since the goods were in semiprocessed conditions, there is no question of payment of duty on those goods.

ii) Rule 57E comes into play only when certain duty is discharged (and later varied) on the finished goods which are inputs for another manufacturer. It does not cover the expungment of credit of duty taken on the inputs. Even if the inputs have been cleared as such, duty is paid thereon in terms of rule 57F (i) (ii).

Therefore, I am inclined to observe from the situation described above, that the duty paid by M/s. S&S is neither a differential duty (since no duty has been discharged in the first instance) nor duty paid (or payable) at the time of clearance of the said goods to warrant a certificate under 57E. Instead, the assessee could have filed a refund claim on the duty paid erroneously on the processed goods received under 57F (2) procedure. Hence, I hold that the Duty Certificate under 57E produced by the assessee is not valid in this case for the purpose of allowing/taking Modvat credit and hence the credit taken is not in order."

4. The Ld. Lower appellate authority, however, in his order in para-6 has held as under :-

"Coming to the subject appeal, had the inputs been removed as such by M/s. S&S Switch Gears and was not expected to come back to the factory of S&S Switch Gears Limited, this would have been covered by rule 57F (1). Because, it was expected that the input, after some process by the appellants, was to be returned to the sender it came under Rule 57F (2). As it turned out, the inputs were not returned after the process back to M/s. S&S Switch Gears Limited. Therefore, the removal came under Rule 57F (1) and duty was paid by M/s. S&S Switch Gears. The appellants would have been entitled to Modvat credit, in the normal course if the inputs had come to them directly under rule 57F (1) i.e. input removed as such. The only difference now was that initially it was removed under rule 57F (2), now converted as 57F (1). Thus, so long as the credit (which is now being claimed) is relatable to the inputs actually received by the appellants and also used in the manufacture of t