Revenue-neutral Modvat debit error treated as a condonable technical lapse where accounts had sufficient balance

Duty on removal of inputs was debited from the wrong Modvat credit account, contrary to the prescribed procedure, but the relevant RG 23A Part II and RG 23C Part II accounts had sufficient balance. Because correcting the debit would not change the revenue position, the error was treated as a technical lapse confined to the duty-paying document and not a substantive revenue loss. The lapse was therefore considered condonable, and the appellate order in favour of the assessee was sustained.

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Issues: Whether the wrong debit of duty on removal of inputs from the capital goods Modvat credit account, instead of the prescribed account, was a condonable technical lapse where sufficient balance existed in the relevant accounts and the exercise was revenue neutral.

Analysis: The inputs were duty paid and credit had been taken under Rule 57A. On removal of the inputs, duty was debited through the capital goods Modvat account in breach of Rule 57-S. However, both the RG 23A Part II account and the RG 23C Part II account had sufficient balance, and correcting the debit from one account to the other would not alter the revenue position. The deficiency was therefore only in the duty paying document and did not involve any substantive loss to Revenue.

Conclusion: The lapse was rightly treated as condonable, and the Commissioner (Appeals)'s order was sustainable; the Revenue appeal was rejected.

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