Modvat credit on duty-paid fabrics allowed despite delayed duty payment and procedural non-compliance.

Modvat credit on duty-paid fabrics, including additional excise duty, was treated as allowable even though the goods were initially cleared without duty, duty was paid later on diversion to the domestic market, and the prescribed procedure was not strictly followed. The exemption claim failed because the inputs were not used in the factory in the manner required by the notification. On credit, the absence of a specific rule addressing delayed duty payment did not by itself defeat entitlement, and earlier precedent supporting credit in similar situations was applied. Credit was to be utilised in the prescribed manner for basic and additional excise duty respectively.

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Issues: Whether Modvat credit could be allowed on duty paid fabrics, including additional excise duty, where the goods were initially cleared without payment of duty, the prescribed procedure for availing credit was not followed, and the duty was paid later on diversion to the domestic market.

Analysis: The claim for exemption under the notification could not succeed because the inputs were not used within the factory in the manner contemplated by the notification. On the credit issue, the absence of a specific rule dealing with delayed payment of duty and non-compliance with the prescribed procedure did not, by itself, defeat the entitlement to credit. The earlier decisions allowing Modvat credit in similar situations were followed, and credit was directed to be utilised in the prescribed manner for payment of basic and additional excise duty respectively.

Conclusion: Modvat credit on the duty paid fabrics, including additional excise duty, was held allowable notwithstanding the procedural non-compliance and delayed duty payment.

Ratio Decidendi: Where duty has been paid on inputs and the governing procedure does not specifically cater to the situation, Modvat credit may still be allowed in conformity with the credit scheme and applicable precedent, even if the prescribed procedure was not strictly followed.

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