Strict compliance with conditional MODVAT storage relaxation governs credit admissibility for inputs kept outside the factory.

MODVAT credit on inputs stored outside the factory was available only as a conditional relaxation from the normal requirement that inputs be kept inside the factory. The relaxation required prior permission of the jurisdictional Commissioner and credit could be taken only after the entire consignment covered by the invoice had been received inside the factory. Where permission was sought only from the Deputy Commissioner and credit was availed while the inputs still remained outside the factory, the procedure was not complied with and the credit was not admissible. The absence of an allegation that the inputs were not used in manufacture did not cure this mandatory procedural breach.

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Issues: Whether MODVAT credit was admissible on inputs stored outside the factory premises without prior permission of the jurisdictional Commissioner and in breach of the prescribed circular-based procedure.

Analysis: The storage of modvatable inputs outside the factory was only a relaxation from the ordinary requirement of keeping inputs inside the factory premises. The relaxation under the Board circular operated subject to prior permission of the jurisdictional Commissioner and subject further to taking credit only after the entire consignment covered by the invoice was received inside the factory. The record showed that the appellant applied only to the Deputy Commissioner, no valid permission of the jurisdictional Commissioner was obtained, and credit was taken while the inputs were still lying outside the factory. The absence of a specific allegation about non-use in manufacture did not cure non-compliance with the mandatory procedure where the issue was the availing of credit under a conditional relaxation.

Conclusion: MODVAT credit was rightly denied and the appeal failed.

Ratio Decidendi: A conditional relaxation permitting storage of inputs outside the factory must be strictly complied with, and credit taken in breach of the prerequisite permission and prescribed receipt procedure is not admissible.

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