Modvat credit and limitation: procedural lapses cannot defeat credit where receipt is undisputed and extended period is unsupported.

Modvat credit was treated as admissible where the goods had admittedly reached the factory, the credit was supported by records, and the only defect was non-endorsement of the original Bill of Entry with issuance of fresh invoices. That lapse was regarded as procedural rather than substantive, so denial of credit was not justified on merits. The demand also failed on limitation because the show cause notice was issued beyond the normal period and no valid basis for invoking the extended period was shown, especially since the credit had been disclosed in the periodical return. The impugned order was therefore set aside with consequential relief.

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Issues: (i) Whether Modvat credit could be denied merely because the prescribed procedure was not strictly followed when the goods had admittedly reached the factory and the credit was otherwise supported by the records; (ii) Whether the demand was barred by limitation.

Issue (i): Whether Modvat credit could be denied merely because the prescribed procedure was not strictly followed when the goods had admittedly reached the factory and the credit was otherwise supported by the records.

Analysis: The goods were received directly at the factory, the mistaken credit taken by the head office was reversed, fresh invoices were issued, and the credit was reflected in the return for the relevant period. The non-endorsement of the original Bill of Entry and issuance of fresh invoices instead of endorsement was treated as a procedural lapse. As the fact of receipt of goods was not disputed, denial of credit on that ground alone was not justified.

Conclusion: The appellant was entitled to Modvat credit on merits.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The show cause notice was issued beyond the normal period of limitation, while the credit had already been availed and disclosed in the periodical return. In the absence of any sustainable basis to invoke the extended period, the demand could not survive on limitation.

Conclusion: The demand was time-barred.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief, as denial of credit was unsustainable both on merits and on limitation.

Ratio Decidendi: Credit under the Modvat scheme cannot be denied for a mere procedural irregularity where receipt of goods and substantive entitlement are established, and a demand raised beyond the normal limitation period cannot be sustained without a valid basis for extension.

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