Modvat credit cannot be denied by treating Rule 57F(2) as mandatory when inputs go directly to job workers.

Rule 57F(2) of the Central Excise Rules, 1944 was treated as an optional procedural facility, not a compulsory for availing Modvat credit under Rule 57A. Where inputs were sent directly to job workers and did not enter the assessee's factory, the scheme of Rules 57A and 57F had to be read as a whole, and compliance with the reporting procedure under Rule 57G(4) supported credit eligibility. The commentary states that, on these facts, the manufacturer could claim Modvat credit without mandatory adherence to Rule 57F(2), because the impugned insistence on that rule as a precondition was unsustainable.

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Issues: Whether Rule 57F(2) of the Central Excise Rules, 1944 was mandatory for availing Modvat credit under Rule 57A of the Central Excise Rules, 1944 in a case where inputs were sent directly to job workers and did not enter the assessee's factory.

Analysis: The scheme of Rule 57F distinguished between inputs brought into the factory and inputs removed outside the factory. On the facts, the inputs were not brought into the petitioners' factory but were sent directly to job workers, and the relevant inputs and finished products were covered by Rule 57A and Notification No. 177/86 dated 01.03.1986. The record also showed compliance with the reporting procedure under Rule 57G(4). Reading the scheme as a whole, Rule 57F(2) was held to confer a facility to be availed of at the manufacturer's option, and not to impose a compulsory condition for claiming Modvat credit under Rule 57A.

Conclusion: Rule 57F(2) was not mandatory for the petitioners to claim Modvat credit under Rule 57A, and the impugned direction requiring compliance with Rule 57F(2) was unsustainable.

Ratio Decidendi: A manufacturer cannot be compelled to follow Rule 57F(2) as a prerequisite for claiming Modvat credit under Rule 57A; the rule operates as an optional procedural facility, not a mandatory condition.

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