Modvat credit cannot be denied for procedural job-work deviations when duty-paid inputs and finished goods satisfy substantive requirements.

Modvat credit could not be denied merely because parts of seats remained at the supplier-cum-job worker's premises and the prescribed job-work movement was not strictly followed. The arrangement achieved the same commercial purpose as direct supply to a job worker by avoiding unnecessary movement of inputs, and the supplier being the same concern as the job worker did not by itself defeat credit where duty had been paid on the inputs and the finished goods were cleared on payment of duty. Procedural deviations were treated as insufficient to override substantive entitlement, and the allegation of a duty-evasion device was rejected.

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Issues: Whether Modvat credit could be denied to the manufacturer and the principal user where parts of seats were retained at the supplier-cum-job worker's premises and the prescribed movement of goods under the job work procedure was not strictly followed.

Analysis: The arrangement between the parties achieved the same commercial result contemplated by the departmental procedure for direct supply of inputs to a job worker, namely saving the time and expense of first moving the inputs to the manufacturer's premises. The fact that the supplier of the inputs and the job worker were the same concern did not, by itself, justify denial of credit when duty had been paid on the inputs and the finished products were cleared on payment of duty. The procedural departures relied upon by the Revenue were treated as insufficient to defeat the substantive entitlement to Modvat credit, and the alleged device to evade duty was not accepted in view of the factual matrix and the prior acceptance of similar movement when the goods physically went to and from the principal manufacturer.

Conclusion: The denial of Modvat credit was not sustainable; both appellants were entitled to the credit claimed.

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