Modvat credit on returned duty-paid inputs cannot be denied merely for non-compliance with Rule 173H or Rule 173L procedure.

Duty-paid components returned to the factory and actually used in manufacture of notified final products were eligible for Modvat credit, even though they were not received under Rule 173H or Rule 173L and no separate permission or declaration was filed. The components had earlier been cleared on duty, their return was intimated to the department, only the portion used as inputs was taken for credit, and the balance was cleared again on duty. The tribunal view followed in the text treats the prescribed procedures as not constituting a condition precedent to credit in these circumstances, so denial of Modvat credit was not justified.

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Issues: Whether Modvat credit could be denied on duty-paid components returned to the factory and used in manufacture, merely because they were not received under the procedure prescribed by Rule 173H or Rule 173L and no separate permission or declaration was filed.

Analysis: The goods had been cleared on duty and later returned because the recipient factory was under lock-out. The returned components were not all taken as credit; only the portion actually used as inputs in manufacture was subjected to Modvat, while the balance was again cleared on payment of duty. The return of the goods had been intimated to the department. The decision followed the earlier tribunal view that when duty-paid components are brought back and used in the manufacture of notified final products, credit cannot be denied solely because the goods earlier went out of the factory and returned. The prescribed procedures under Rule 173H or Rule 173L were held not to be a condition precedent for availing Modvat credit in such circumstances.

Conclusion: Modvat credit could not be denied, and the assessee was entitled to succeed.

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