Modvat credit on stock transfers and free supplies remains available when inputs are duty-paid, invoiced, and used in dutiable manufacture.

Modvat credit remained admissible where duty-paid inputs were received under excise invoices, duly recorded, and used in manufacturing dutiable final products, even though they were supplied free of cost or moved by stock transfer rather than conventional sale. The excise context treated "sale" broadly enough to include stock transfer and book adjustment within the same organisation, so the absence of a traditional sale did not defeat credit eligibility. Once credit was allowable, the penalty could not survive because its foundation had gone. Revenue's appeals were dismissed.

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Issues: Whether Modvat credit was admissible when inputs were supplied free of cost or by stock transfer without a conventional sale, and whether penalty could survive once credit was held allowable.

Analysis: The relevant notification was understood as requiring a sale for availing credit, but the Tribunal applied the settled view that the expression "sale" in the excise context includes stock transfer and book adjustment between units of the same organisation. Since the goods were duty paid, received under excise invoices, duly accounted for, and used in the manufacture of dutiable final products, the absence of a conventional sale did not disentitle the assessee from Modvat credit. Once the credit was found admissible, the basis for penalty also disappeared.

Conclusion: Modvat credit was admissible to the assessee, and the penalty was not sustainable. The Revenue's appeals were dismissed.

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