Modvat credit survives direct dispatch of duty-paid inputs to job workers when substantive conditions are met.

Modvat credit was not to be denied merely because duty-paid inputs were sent directly to job workers instead of first reaching the assessee's factory, where the invoices stood in the assessee's name, the inputs were ultimately received back after job work, and the substantive credit conditions were satisfied. The applicable Rule 57A and Rule 57Q regime focused on duty payment, receipt within the credit chain, and use in manufacture of excisable goods; those requirements were found met. The arrangement was also treated as revenue neutral. Direct delivery to a job worker, by itself, did not defeat entitlement to credit.

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Issues: Whether Modvat credit could be denied merely because duty-paid inputs were delivered directly to job workers and not first received in the assessee's factory, where the inputs were ultimately received back after job work.

Analysis: The applicable regime was Rule 57A and Rule 57Q of the Central Excise Rules, 1944. The dispute related to a period in which the inputs were moved from the principal supplier to the job workers and then returned to the assessee after processing. The duty-paying documents stood in the assessee's name, the credit was reversed before the relevant movement entries and later re-availed, and the final receipt of processed goods was not disputed. The essential conditions for Modvat credit, namely duty payment on inputs, receipt of inputs in the credit chain, and use in the manufacture of excisable goods, were found to have been satisfied. The credit arrangement was also treated as revenue neutral. The authority relied on precedent holding that mere physical delivery at a job worker's premises does not, by itself, defeat credit where the substantive conditions are met.

Conclusion: Modvat credit could not be denied on the ground of direct delivery to job workers, and the assessee was entitled to credit.

Ratio Decidendi: Where duty-paid inputs are covered by invoices in the assessee's name, are ultimately received after job work, and the substantive conditions for credit are met, direct delivery of the inputs to a job worker does not by itself justify denial of Modvat credit.

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