Modvat credit cannot be denied for a curable endorsement defect when duty-paid inputs were received, used, and duly recorded.

Modvat credit cannot be denied solely because gate passes were not endorsed in favour of the assessee at the time of receipt of inputs, where the inputs were duty-paid, received in the factory, used in manufacture of dutiable final products, and properly reflected in statutory records. The absence of prior endorsement is a procedural defect, not a substantive bar to credit, and later endorsement can cure that defect. Departmental circulars or instructions cannot override the statutory entitlement where the essential conditions for credit are satisfied. The order allowing Modvat credit was therefore sustained.

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Issues: Whether Modvat credit could be denied merely because the gate passes were not endorsed in favour of the assessee at the time of receipt of the inputs, despite proof of receipt, duty payment, use in manufacture, and later endorsement by the Railways.

Analysis: The inputs were admittedly received in the factory, duty had been paid on them, they were used in the manufacture of dutiable final products, and the receipt and consumption were regularly reflected in statutory records and returns. The only objection was the absence of endorsement on the gate passes before availment of credit. That omission was treated as a bona fide procedural defect capable of rectification, not as a substantive bar to credit. The later endorsement cured the defect, and the departmental circular could not be applied so as to defeat the statutory entitlement where the substantive conditions for credit were satisfied. The Board's later instruction also supported allowance of credit notwithstanding minor procedural lapses.

Conclusion: The denial of Modvat credit on the ground of prior endorsement was not sustainable, and the credit remained allowable to the assessee.

Final Conclusion: The appeal failed, and the order allowing Modvat credit was sustained.

Ratio Decidendi: A procedural defect in duty-paying documents, including lack of endorsement, cannot by itself defeat Modvat credit where receipt of duty-paid inputs in the factory, their use in manufacture, and proper accounting are established, and the defect is later cured by endorsement.

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