Modvat credit on capital goods sent abroad for repair remained admissible after prior intimation and re-import of the same goods.

Modvat credit was admissible where capital goods were removed for repair after prior intimation to the department, sent abroad, and re-imported after repair. Rule 57-S(7) allowed removal of capital goods for test, repair or re-conditioning on intimation and acknowledgement, subject to return to the same factory, and the record showed substantial compliance with that procedure. Because the same goods were exported for repair and re-imported, credit could not be denied merely on the ground that the original invoice was not a fresh duty-paying document for their return. The disallowance of credit and the related penalty were therefore not sustainable.

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Issues: Whether Modvat credit was admissible when capital goods were removed for repair after intimation to the department, sent abroad for repair, re-imported after repair, and the earlier credit was reversed on removal.

Analysis: Rule 57-S(7) permitted removal of capital goods for test, repair or re-conditioning after intimation and acknowledgement from the proper authority, subject to their return to the same factory. The record showed that the assessee had given prior intimation to the department, the intimation was received, the goods were sent for repair, and the re-import documents specifically reflected that the same goods had been exported for repair and re-imported thereafter. The revenue did not dispute these material facts. In these circumstances, the objection that the original invoice ceased to be a valid document for credit could not be sustained, especially when the removal for repair was duly intimated and the statutory procedure was substantially complied with.

Conclusion: Modvat credit was admissible and the disallowance of credit and penalty were not sustainable.

Ratio Decidendi: Where capital goods are removed for repair after due intimation under Rule 57-S(7) and are subsequently re-imported, credit cannot be denied merely on the ground that the original invoice is not a fresh duty-paying document for the return of the same goods.

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