Modvat credit and procedural non-compliance: later-determined duty liability cannot, by itself, defeat substantive eligibility.

Modvat credit cannot be denied solely because procedural requirements under Chapter V(AA) were not completed when the assessee was then claiming exemption on the intermediate product. Where duty liability on the intermediate product is recognised only later, the earlier inability to follow the credit procedure does not, by itself, defeat substantive eligibility. The Court applied the principle in Formica India Division and treated the Tribunal's remand for verification of eligibility as not raising a referable question of law. The operative effect is that procedural non-compliance at the material time is not fatal if the substantive conditions for credit are otherwise satisfied.

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Issues: Whether Modvat credit could be allowed at a later date without following the procedure prescribed under Chapter V(AA) of the erstwhile Central Excise Rules, 1944.

Analysis: The claim for credit arose only after it was found that duty was payable on the intermediate product, namely chlorine, even though the assessee had earlier been claiming exemption. The Court applied the principle that where an assessee could not have complied with the procedural requirements at the relevant time because it was asserting exemption, denial of credit merely on that technical ground would be unjustified. The decision in Formica India Division was treated as governing the situation, and the Tribunal's remand for verification of eligibility was not found to give rise to any referable question of law.

Conclusion: Modvat credit could not be denied merely because the procedural formalities had not been completed at the material time; the objection based on the earlier non-compliance with procedure was rejected, and the reference application failed.

Ratio Decidendi: Where duty liability on an intermediate product is determined only later, credit cannot be denied solely for non-compliance with procedural requirements that could not realistically have been met when exemption was being claimed, if substantive eligibility is otherwise established.

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