Modvat credit demand fails where records and departmental verification show no actual availment on disputed invoices.

Where documentary evidence shows that Modvat credit was not actually availed on disputed invoices, a demand for wrongful credit and the associated penalty cannot be sustained merely because common inputs and packing materials were used for dutiable and exempted goods without separate records. The assessee produced invoices and RG 23A Part I registers, and departmental verification confirmed that no credit had been taken against those invoices. The demand, worked out on a pro rata basis, was therefore unsustainable, and the corresponding penalty also failed.

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Issues: Whether the demand and penalty for alleged wrongful availment of Modvat credit on common inputs and packing materials used for dutiable and exempted products were sustainable when the assessee produced invoices and registers showing that credit had not been availed.

Analysis: The dispute arose from common inputs and packing materials used in the manufacture of dutiable and exempted goods without separate records as contemplated by the Central Excise Rules, 1944. The assessee produced additional invoices and RG 23A Part I records to show that credit had not in fact been availed against the disputed invoices. The documents were taken on record under Rule 23 of the CESTAT Procedure Rules, 1982, and the departmental representative, after verification, fairly conceded that no credit had been availed against the invoices produced. It was also found that the show-cause demand had been worked out on a pro rata basis, and the partial allowance by the lower authority had proceeded on an incorrect assumption that the benefit had already been granted in the notice.

Conclusion: The assessee had not availed the disputed Modvat credit, and the demand of Rs. 1,48,630/- with equivalent penalty was unsustainable. The order of the Commissioner (Appeals) was set aside and the appeal was allowed.

Ratio Decidendi: Where documentary evidence establishes that credit was not actually availed and the departmental verification confirms the same, a demand for wrongful credit cannot be sustained merely because the assessee used common inputs for exempted and dutiable goods.

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