Judgment:
1. The issue in this case relates to availment of deemed Modvat credit under Rule 57G(2). The Asstt. Commissioner denied the Modvat credit on certain items of input holding that deemed credit on these inputs cannot be granted because they were purchased from dealers of bazar scrap and such were dearly recognisable as non-duty paid. Deemed credit is available only on those inputs which are deemed to be duty paid and purchased from the market.
2. We have heard Shri S.V. Singh, the ld. DR for the appellant Commissioner and Shri Willingdon Christian, the ld. counsel for the respondents. The decision of the Commissioner (Appeals) in favour of the respondents arises out of the categorisation of the various inputs on which deemed credit has been taken. The question to find out is, which category is truly recognisable as non duty paid, in which case, the respondents will not be eligible to take deemed credit there of.
3. The other aspect is whether the department can establish that such scrap could have come to the market only on enjoying the full exemption. The basic criteria to be adopted in such a situation for denying the deemed Modvat credit on the ground that the inputs are clearly recognisable as non-duty paid have been laid down in the Larger Bench of the Tribunal in the case of Machine Builders v. Collector of Central Excise -1996 (83) E.L.T. 576 (Tribunal) which has been followed by the Tribunal in the case of Man Industries Corporation Ltd. v.Commissioner of Central Excise, Jaipur - 1996 (88) E.L.T. 178 (Tribunal). In the Larger Bench decision it has been held that input material such as scrap, as in this case, which need not pay any duty and also has not paid any duty, will be the scrap recognizable as non-duty paid. Here, while the department holds that the input in question are all of this type, the respondents have alleged before the Commissioner (Appeals) that they consist of inputs other than such type like borings and turning waste. The Larger Bench has also considered the nature of the exemption notification as the relevant factor for considering the input as non-duty paid. Para 23 of the Larger Bench is relevant in this context. Therefore, in the circumstances of this case, we are of the view that a physical verification of the nature of the scrap on which deemed credit is claimed in detail may have to be carried out. The ld. counsel for the respondents also tells us that they have submitted to the Asstt. Commissioner during adjudication proceedings all the relevant documents under which the inputs in question have been purchased by them and that therefore such a verification is possible since these are part of the Asstt.
Commissioner's record. Accordingly, we allow the appeal by way of remand with a direction that the jurisdictional Asstt. Commissioner may do the verification as stated above and determine the issue once again in the light of the ratio of the Larger Bench decision referred to supra which has been followed by the other decision of the Tribunal as stated above. The appeal is accordingly disposed off.