Modvat credit cannot be denied for mere procedural breach where substantive eligibility is otherwise established.

Procedural non-compliance with Rule 57J and Notification No. 214/86-C.E. does not, by itself, justify denial of Modvat credit where the assessee is otherwise substantively eligible. The discussion treats Rule 57J as governing credit for inputs used in intermediate products received by a job worker and notes that the breach was only procedural, with no penal liability in issue. The operative principle applied is that a condition attached to a job-work credit arrangement cannot defeat the credit benefit when the underlying entitlement is established. The assessee was therefore entitled to the Modvat credit.

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Issues: Whether Modvat credit could be denied for non-compliance with the procedure under Rule 57J and Notification No. 214/86-C.E. when the assessee was otherwise eligible for the credit.

Analysis: Rule 57J of the Central Excise Rules, 1944 governed credit in respect of inputs used in intermediate products received by a job worker, and sub-rule (2) prescribed the procedural condition regarding availing of exemption under Notification No. 214/86-C.E. The record showed procedural non-compliance, but the dispute was not about any penal liability and the lower authorities had not invoked one. The governing principle applied was that breach of procedure, by itself, does not justify denial of the substantive credit benefit when the underlying eligibility is otherwise established.

Conclusion: The credit could not be denied merely on the basis of procedural non-compliance, and the assessee was entitled to the Modvat credit.

Ratio Decidendi: Procedural non-compliance with the conditions attached to intermediate-product job work arrangements does not, by itself, warrant denial of Modvat credit if substantive eligibility for the credit is otherwise satisfied.

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