Modvat/Cenvat credit survives technical invoice defects when duty-paid goods and factory use are proved; penalty is deleted.

Modvat/Cenvat credit cannot be denied merely because the credit documents are technically imperfect when the original invoices and surrounding records show receipt and consumption of duty-paid goods in the factory. On those facts, the disputed credits were held admissible and the disallowance to that extent was set aside. Penalty for the same credit availment was also held unsustainable because the matter arose during the early regime, where trade practice confusion existed and no deliberate or intentional wrongful availment was established. The remaining unproven credits continued to be denied.

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Issues: (i) whether Modvat/Cenvat credit was admissible on invoices where the original documents established receipt and use of goods; (ii) whether penalty was sustainable for the disputed credit availment.

Issue (i): whether Modvat/Cenvat credit was admissible on invoices where the original documents established receipt and use of goods.

Analysis: The appellant produced the original invoices for two disputed entries. Those documents showed dispatch of goods to the appellant and discharge of duty. The objection was confined to the form of the document used for credit. Since the goods were received and consumed in the factory and the relevant period permitted credit on invoices issued by dealers as well as manufacturers, the documentary basis for those two credits was sufficient.

Conclusion: The credit of Rs. 4,500 and Rs. 1,040 was admissible and the disallowance to that extent was set aside in favour of the assessee.

Issue (ii): whether penalty was sustainable for the disputed credit availment.

Analysis: The dispute arose in the early stage of the Modvat/Cenvat regime, when there was acknowledged confusion in trade practice. The record did not establish deliberate or intentional wrongful availment of credit. In those circumstances, penal consequences under the cited rule were not justified.

Conclusion: The penalty was not sustainable and was set aside in favour of the assessee.

Final Conclusion: Relief was granted on the substantiated credit claims and the penalty was deleted, while denial of the remaining unproven credits was maintained.

Ratio Decidendi: Credit under the Modvat/Cenvat scheme cannot be denied merely on a technical objection to the copy of the invoice when original documents establish receipt of duty-paid goods and their use, and penalty is unwarranted absent deliberate misuse.

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