Modvat credit on repaired capital goods cannot be denied merely for following an incorrect procedural route.

Modvat credit on capital goods sent abroad for repair and re-imported after repair could not be denied merely because the assessee followed an allegedly incorrect procedure under Rule 57S and reversed the credit before return. The shipping bill and bill of entry showed movement for repair and re-import, the goods were received back in the factory without dispute, and the substantive conditions for credit remained satisfied. In these circumstances, the procedural irregularity did not defeat entitlement, and denial of credit was unsustainable.

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Issues: Whether Modvat credit on capital goods sent abroad for repair and later received back could be denied merely because the assessee reversed the credit and followed an allegedly wrong procedure under Rule 57S of the Central Excise Rules.

Analysis: The capital goods were admittedly sent out for repair and the shipping bill and bill of entry showed the movement for repair and re-import after repair. The credit initially taken was reversed under Rule 57S(7), and the goods were received back in the factory without dispute. In these circumstances, the mere fact that the assessee followed a procedure said to be unsuitable for repair clearance did not justify denial of credit, because the substantive entitlement to credit remained intact.

Conclusion: The denial of Modvat credit on the ground of wrong procedure was unsustainable, and the assessee was entitled to credit of Rs. 3,24,401/-.

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