Modvat credit verification failure and delayed show cause notice led to denial of credit and limitation-based relief.

Modvat credit was denied where, after remand, the assessee failed to produce the records needed to verify movement of inputs to job workers and return of processed components, so the directed verification could not be completed. The excise demand was also treated as time-barred because the show cause notice was issued long after departmental knowledge of the facts, making the notice inordinate and the demand unsustainable on limitation. The main demand and penalty were set aside, while only the uncontested small amounts were sustained.

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Issues: (i) Whether Modvat credit could be denied when the assessee failed to produce the documents required for verification pursuant to an earlier remand. (ii) Whether the show cause notice and demand were barred by limitation.

Issue (i): The remand had directed verification of the documents showing movement of inputs to the job workers and return of the processed components to the assessee's factory. The assessee did not produce the required records before the adjudicating authority, and the prescribed verification could not be carried out.

Conclusion: Modvat credit was not allowable on this ground, since the condition directed for verification was not satisfied.

Issue (ii): The demand arose from a visit of the officers and scrutiny of records on 9-9-1986, whereas the show cause notice was issued only on 9-2-1990. On the facts noted, the notice was issued after an inordinate delay and was treated as time-barred.

Conclusion: The demand was barred by limitation and the appeal was allowed with consequential relief, with only the uncontested small amounts sustained and penalty set aside.

Final Conclusion: The assessee succeeded on the limitation issue, resulting in setting aside of the main demand and penalty, while maintaining only the admitted amounts.

Ratio Decidendi: A demand under excise law cannot be sustained when the show cause notice is issued after an excessive delay from the date of departmental knowledge and the matter is otherwise time-barred; procedural non-compliance may justify denial of credit where directed verification is not possible.

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