Modvat credit for steam-generation inputs remains admissible where substantive eligibility is met and only procedural defects are raised.

Modvat credit on furnace oil used to generate steam for manufacture was treated as admissible even though the boiler and furnace were situated in adjoining premises, because Rule 57B(1) extended eligibility to inputs used for steam generation and the procedural requirements under Rules 57F(3) and 57F(4) could be complied with. The objection was only procedural, not to substantive entitlement, and the later acceptance of the same credit for a subsequent period supported that view. Credit could therefore not be denied where the input was used in relation to manufacture and the procedural lapse did not defeat the underlying eligibility.

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Issues: Whether Modvat credit on furnace oil used for generation of steam in an adjacent premises was admissible, and whether the denial could be sustained when the lapse was procedural and the benefit had been allowed for a subsequent period.

Analysis: Rule 57B(1) of the Central Excise Rules, 1944 enlarged the scope of eligible inputs to include inputs used for generation of steam used for manufacture of final products, subject to the requirement that the steam be used within the factory of production. The order under challenge also recognised that credit could be taken by following the procedure contemplated under Rules 57F(3) and 57F(4). The denial was founded on the fact that the boiler and furnace were installed in premises adjoining the appellant's factory, but the defect pointed out was procedural in nature. The fact that the same credit had been allowed for a subsequent period and accepted by the revenue supported the appellant's case.

Conclusion: The credit was held admissible and the denial was not sustained; the appeal was allowed.

Ratio Decidendi: Where inputs are used for generation of steam in relation to manufacture and the only objection is procedural, Modvat credit cannot be denied if the substantive entitlement is otherwise satisfied and the procedure can be complied with.

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