Modvat credit on capital goods upheld where purchase was from a manufacturer and procedural lapse caused no revenue loss.

Modvat credit on capital goods could not be denied where the goods were purchased from a manufacturing unit, making Rule 57R(3)(ii)(b) inapplicable on the admitted facts. Credit taken on the strength of the invoice was upheld because receipt of the goods was not disputed. The Court also treated the procedural lapse in following the prescribed process as insufficient to defeat credit, since duty had been paid and the Revenue suffered no loss. The assessee's entitlement to Modvat credit was therefore sustained.

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Issues: Whether Modvat credit on capital goods could be denied under Rule 57R(3)(ii)(b) where the transaction was with a manufacturing unit and not a finance company, and whether non-compliance with the prescribed procedure justified denial of credit.

Analysis: The capital goods were procured from MUL, which was admitted to be a manufacturing unit and not a finance company. On that factual basis, Rule 57R(3)(ii)(b) was held inapplicable. The credit had been taken on the strength of the invoice and the receipt of goods was not in dispute. The Court further held that a mere procedural lapse would not defeat Modvat credit when duty had in fact been paid and the Revenue had suffered no loss.

Conclusion: The Modvat credit could not be denied to the assessee, and the Revenue's challenge failed.

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