Modvat credit cannot be denied on a departmental circular where the rule permits non-simultaneous receipt and no mala fides exist.

A departmental circular issued to officers could not be relied on to deny Modvat credit to an assessee where the statutory rule allowed credit despite non-simultaneous receipt of inputs and supporting documents. The circular governed departmental procedure for issuance of subsidiary gate passes and did not create a bar on the assessee. Rule 57G(2) of the Central Excise Rules, 1944 recognised that physical receipt of inputs and receipt of Modvat documents need not be simultaneous. As the record showed credit was taken only after both were received and no mala fides were established, the demand based on the circular could not be sustained.

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Issues: Whether Modvat credit could be denied on the ground that the application for a subsidiary certificate was made after receipt of the inputs, and whether the Board circular governing subsidiary certificates could be used as the basis for the show cause notice.

Analysis: The circular was directed to the Range Superintendent and required issuance of the subsidiary gate pass within twenty-four hours of receipt of the application; in the event of default by the Superintendent, there was no bar on removal of goods pending receipt of the certificate. The circular therefore governed the departmental and did not impose a bar on the assessee. The order also noted that physical receipt of inputs and receipt of Modvat documents need not be simultaneous, and Rule 57G(2) of the Central Excise Rules, 1944 recognized this position through its proviso. Since the notice itself showed that credit was taken only after receipt of both the inputs and the documents, no mala fides could be attributed to the assessee.

Conclusion: The demand could not be sustained on the basis of the circular, and the Revenue's appeal was dismissed.

Ratio Decidendi: A departmental circular binding only on officers cannot be used to deny Modvat credit to an assessee where the statutory rule permits credit despite non-simultaneous receipt of inputs and documents and no mala fides are established.

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