Modvat credit cannot be denied for procedural lapses where duty-paid inputs are received and used, and limited verification is proper.

Modvat credit cannot be denied merely for procedural defects in RG 23A entries where the duty-paid nature, receipt, and use of inputs are otherwise established. The insertion of sub-rule (11) in Rule 57G was treated as procedural and clarificatory, so technical lapses did not justify denial of credit on the facts noted. Where only a quantity mismatch appeared in selected entries, limited verification of actual receipt before allowing credit was accepted as a proper appellate course. The appeal was therefore unsustainable because the credit denial on procedural grounds lacked merit and the restricted verification direction was appropriate.

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Issues: (i) Whether credit could be denied for alleged procedural irregularities in making entries in RG 23A when the duty-paid nature, receipt, and use of inputs were not in dispute. (ii) Whether the Commissioner (Appeals) was justified in granting relief and directing limited verification only where quantity mismatch was noticed.

Issue (i): Whether credit could be denied for alleged procedural irregularities in making entries in RG 23A when the duty-paid nature, receipt, and use of inputs were not in dispute.

Analysis: The clarification introduced by insertion of sub-rule (11) in Rule 57G was treated as procedural and clarificatory in nature. The documents contained the relevant particulars, and the record showed receipt of the goods in the factory. Since there was no dispute about the duty-paid character of the inputs, their receipt, or their use in manufacture, denial of credit on technical or procedural grounds was held to be unwarranted. The circular relied upon reflected the same approach against issuance of notices for purely procedural lapses.

Conclusion: Credit could not be denied merely for procedural defects, and the issue was decided in favour of the assessee.

Issue (ii): Whether the Commissioner (Appeals) was justified in granting relief and directing limited verification only where quantity mismatch was noticed.

Analysis: The Commissioner (Appeals) found that admissibility of credit on merits was not in dispute and that verification was required only for limited entries where the quantity shown in the bill of entry did not tally with the record. In that situation, directing the Deputy Commissioner to verify the actual quantity received before allowing credit was held to be a proper exercise of appellate authority, and no infirmity was found in that approach.

Conclusion: The limited verification direction was upheld, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal failed because the denial of credit on procedural grounds was unsustainable and the limited verification mechanism ordered by the appellate authority was found proper.

Ratio Decidendi: Modvat credit cannot be denied on mere procedural or technical lapses where the duty-paid nature, receipt, and use of inputs are otherwise established, and a clarificatory procedural amendment may apply to past periods.

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