Modvat credit on capital goods: premature record entry before installation was only a procedural lapse, so penalty was set aside.

Modvat credit on capital goods was held admissible where the goods were received in the factory, and the only breach was that the credit was entered in RG-23A Part II before installation. Because there was no evidence that the credit was wrongly utilised before installation, the lapse was treated as a procedural infraction under Rule 57T and the related notification and circular. Penalty was therefore not justified and was set aside.

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Issues: Whether penalty was sustainable where Modvat credit on capital goods had been allowed, but the assessee had recorded the credit in RG-23A Part II before installation of the capital goods in alleged breach of Rule 57T and the related notification and circular.

Analysis: The credit itself was found admissible and there was no dispute that the capital goods were received in the factory. The only lapse was the timing of the entry in the statutory record before installation or use. As there was nothing to show that the credit was utilised before installation, the breach was treated as a procedural infraction only and not as a ground for penalty.

Conclusion: Penalty was not justified and was set aside.

Final Conclusion: The assessee obtained full relief against the penalty, and the order was modified only to that extent.

Ratio Decidendi: Where Modvat credit is otherwise admissible and no wrongful utilisation is shown, a mere procedural breach in making the entry before installation does not warrant penalty.

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