Modvat credit cannot be denied for a procedural lapse where duty-paid goods and invoice endorsements support eligibility.

Modvat credit should not be denied where the goods were duty paid and the processing duty on dyed yarn had been discharged under the relevant notifications. The objection related only to the consignments moving through a processor and the absence of an express provision for that route, but this was treated as a minor procedural lapse rather than a defect affecting substantive eligibility. Endorsement on the mother invoices, the dealer premises functioning as the head office, and the department's own circular were relied on to support the movement of goods and the taking and passing on of credit. On that basis, denial of credit and the associated penalty were unwarranted.

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Issues: Whether Modvat credit and the consequential relief could be denied on the ground that the goods were sent through a processor and that the defect in procedure was only technical or procedural in nature.

Analysis: The goods were found to be duty paid, and the processing duty on the dyed yarn was paid under the relevant notifications. The objection turned only on the manner in which the consignments moved through the processor and on the allegation that there was no provision permitting such a route. The order treated this as a minor procedural lapse. It also relied on the fact that the dealer premises served as the head office and that endorsement on the mother invoices, together with the department's own circular, supported the movement of goods and the taking and passing on of credit. In these circumstances, the defect was treated as procedural and not as one going to the substance of eligibility for credit.

Conclusion: Denial of Modvat credit was not justified, and the penalty was also unwarranted. The issue was decided in favour of the assessee.

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