Modvat credit on valid dealer invoices cannot be denied solely due to alleged dealer irregularities without action against the dealer.

Modvat credit could not be denied where the invoices were issued by duly registered branch offices of the dealer and the goods were directly dispatched by the manufacturer to those branches. The invoices were treated as valid duty-paying documents, and alleged irregularities attributed to the dealer did not by themselves invalidate the credit claim. In the absence of any proceedings against the dealer, the credit documents remained acceptable and the credit was not defeated merely because of lapses on the dealer's side. The denial of Modvat credit was therefore unsustainable, and the appellants were entitled to credit.

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Issues: Whether Modvat credit could be denied to the appellants on the ground that the invoices on the basis of which credit was taken were issued by registered branch offices of the dealer, while the manufacturer's invoices stood in the name of the dealer's main office, and whether alleged irregularities by the dealer could defeat the credit claim without proceedings against the dealer.

Analysis: The branch offices of the dealer were duly registered and the goods were directly despatched by the manufacturer to those branch offices. The appellants took credit on invoices issued by the dealers, which were treated as valid duty-paying documents. The denial of credit rested only on irregularities attributed to the dealer, but no proceedings were initiated against the dealer. On these facts, the documents remained valid for credit and the credit could not be denied merely because of alleged lapses on the dealer's side.

Conclusion: The denial of Modvat credit was unsustainable and the appellants were entitled to the credit.

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