Modvat credit on captive duty-paid inputs may survive procedural lapses if duty payment and manufacture are verified.

Modvat credit was considered available for duty-paid Chlorine Gas used captively in manufacturing Hydrochloric Acid, even though no declaration was filed under Rule 57G and RG 23A Part I and II records were not maintained. The stated principle was that procedural lapses should not, by themselves, defeat substantive credit where the input duty payment and captive use in the final product are established. Admissibility remained subject to verification of the factual basis, including duty payment on the input and its actual use in manufacture.

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Issues: Whether Modvat credit could be allowed on duty paid Chlorine Gas used captively in the manufacture of Hydrochloric Acid despite non-filing of declaration under Rule 57G and non-maintenance of RG 23A Part I and II records.

Analysis: The assessee abandoned the exemption route under Notification No. 40/85 and sought relief by way of Modvat credit. The Tribunal noted that earlier decisions had recognised that failure to follow procedural requirements should not, by itself, defeat substantive Modvat benefit where the duty-paid input was used in the manufacture of the final product. Since the claim required verification of factual matters, namely payment of duty on Chlorine Gas and its captive use in the manufacture of Hydrochloric Acid, the matter had to be sent back to the original authority for factual verification.

Conclusion: The Tribunal held that if duty-paid Chlorine Gas was used captively in the manufacture of Hydrochloric Acid, Modvat credit could be allowed without insisting on prior declaration under Rule 57G or maintenance of RG 23A Part I and II records, subject to admissibility on verification.

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