Section 11D demand fails without proof of duty collection; Modvat credit survives procedural lapses, subject to verification.

Section 11D did not apply where perfumes were manufactured without power and there was no evidence that excise duty, or any amount collected as such, had been recovered from buyers; purchase orders stating that price was inclusive of duty were insufficient, so the demand was set aside. Modvat credit on inputs used in air fresheners could not be denied merely for procedural lapses where receipt of inputs and their use in manufacture were not disputed; however, the credit issue required verification of duty-paying documents, and the connected duty liability and penalty were remanded for fresh determination.

---

---

Issues: (i) Whether duty demand on perfumes collected from buyers could be sustained under section 11D; (ii) Whether Modvat credit on inputs used in air fresheners could be denied for procedural lapses and whether the connected duty and penalty required fresh determination.

Issue (i): Whether duty demand on perfumes collected from buyers could be sustained under section 11D.

Analysis: The perfumes were found to have been manufactured without aid of power, and the Department had no evidence to show that duty was payable on them. The invoices did not show any amount collected as excise duty. The purchase orders stating that the price was inclusive of duty did not establish collection of duty as such. Section 11D applies only where a person liable to pay duty collects an amount in excess of duty assessed or determined and paid, and that condition was not satisfied.

Conclusion: The demand under section 11D was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether Modvat credit on inputs used in air fresheners could be denied for procedural lapses and whether the connected duty and penalty required fresh determination.

Analysis: The liability to duty on air fresheners was not disputed. The dispute concerned denial of Modvat credit on the ground that RG-23 records were not maintained despite filing of the required declaration. Where receipt of inputs and their use in manufacture are not denied, credit cannot be denied merely for procedural lapses. The matter also required verification of duty-paying documents and factual examination of the inputs received and used, and the penalty had to be reconsidered after the deletion of the section 11D demand.

Conclusion: Modvat credit was held admissible in principle subject to verification of duty-paying documents, and the matter was remanded for fresh determination of duty liability and penalty.

Final Conclusion: The appeal succeeded on the section 11D demand, while the credit issue and consequential penalty were sent back for reconsideration.

Ratio Decidendi: Section 11D applies only where duty, or an amount in excess of duty assessed or determined and paid, is collected from buyers as representing excise duty; procedural lapses cannot by themselves defeat Modvat credit when receipt and use of inputs in manufacture are otherwise established.

---