Modvat credit cannot be denied on technical lapses where substitute documents were authorised and eligibility remained intact.

Modvat credit could not be denied merely because it was taken after six months where the original invoices were misplaced and the assessee had obtained permission to rely on substitute documents; the operative document for credit became the permission letter, and the credit was treated as timely. Credit was also not liable to rejection on inputs cleared and received back through the same invoice chain under Rule 57F(1)(ii) merely because the department alleged non-compliance with Rules 173H, 173L or 57F. The text emphasises that procedural irregularities may invite penalty, but they do not by themselves defeat otherwise eligible credit.

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Issues: (i) Whether Modvat credit on two invoices could be denied for having been taken beyond six months from the invoice date; (ii) Whether Modvat credit could be denied on inputs cleared and received back through an invoice under Rule 57F(1)(ii) on the ground that the procedure under Rules 173H, 173L or 57F was not followed.

Issue (i): Whether Modvat credit on two invoices could be denied for having been taken beyond six months from the invoice date

Analysis: The credit on the two invoices had already been entered in Part I within time, and the original invoices had been misplaced. The assessee had applied for permission to avail credit on other documents, and the Assistant Commissioner granted such permission. In these circumstances, the relevant document enabling availment of credit became the permission letter itself, and the credit taken thereafter was within six months of that permission. The six-month embargo under Rule 57G did not apply to defeat credit where the prescribed procedure for lost or misplaced documents had been followed.

Conclusion: The denial of credit on the two invoices was unjustified and the issue was decided in favour of the assessee.

Issue (ii): Whether Modvat credit could be denied on inputs cleared and received back through an invoice under Rule 57F(1)(ii) on the ground that the procedure under Rules 173H, 173L or 57F was not followed

Analysis: The credit had earlier been reversed when the goods were sent out and was later taken again on receipt back under the same invoice chain. The department did not establish that such an invoice could not serve as a prescribed document for availing credit. Any procedural irregularity in the movement of inputs could attract penal consequences, but it did not, by itself, justify denial of otherwise eligible Modvat credit.

Conclusion: The denial of credit on this count was also unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the assessee was held entitled to the disputed Modvat credit with consequential relief.

Ratio Decidendi: Where the assessee follows the prescribed procedure for availing credit on lost or misplaced documents, or where a procedural infraction in the movement of inputs is not shown to affect the basic eligibility of credit, Modvat credit cannot be denied merely on a technical or procedural objection.

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