Strict compliance with exemption conditions defeats Modvat credit where prescribed payment mode under the notification was not followed.

Modvat credit under Notification No. 58/97-C.E. was available only where specified inputs were received directly from the manufacturer under an invoice showing duty payment and where the invoice price was paid in the prescribed manner. The explanation requiring direct payment by cheque, draft, or banker's cheque from the final product manufacturer's own bank account was treated as mandatory, not merely procedural. Because these express payment conditions were not met, the exemption benefit could not be extended and credit was denied. The notification was therefore strictly construed, and non-compliance with its conditions disentitled the assessee to Modvat credit.

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Issues: Whether the assessee was entitled to Modvat credit under Notification No. 58/97-C.E. dated 30-8-1997 despite non-compliance with the conditions in the explanation governing direct payment and prescribed mode of payment for invoice price.

Analysis: The notification permitted credit only in respect of specified inputs received directly from the manufacturer under cover of an invoice declaring that the appropriate duty had been paid. The explanation further required that the invoice price be paid directly by the manufacturer of the final products to the manufacturer of the inputs by cheque drawn on the manufacturer's own bank account, or by draft, or by banker's cheque. The conditions in the explanation were treated as mandatory, not merely procedural. Since the payment requirement and mode of payment were not satisfied, the benefit could not be extended. The notification was to be strictly construed, and non-compliance with its express conditions disentitled the assessee to credit.

Conclusion: The assessee was not entitled to Modvat credit under the notification, and the Revenue's appeal succeeded.

Ratio Decidendi: Conditions attached to a concessional or exemption notification granting Modvat credit must be strictly complied with, and failure to satisfy mandatory payment requirements disentitles the assessee to the benefit.

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