Modvat credit on split consignments cannot be denied for a timing lapse when duty has been paid and goods fully received.

Modvat credit on imported inputs could not be denied merely because the assessee took credit on receipt of the first lot of a split consignment rather than after the last lot. The decisive facts were that the full quantity of imported goods reached the factory and the additional customs duty had been paid, so the timing defect was only procedural and did not affect substantive entitlement. The denial of credit was treated as an overly technical reading of the excise rules, and the related demand and penalty were set aside.

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Issues: Whether Modvat credit of additional duty of customs paid on imported inputs could be denied merely because the credit was taken on receipt of the first lot of a split consignment instead of after receipt of the last lot, and whether the resulting demand and penalty were sustainable.

Analysis: The input material was received in parts, but the entire quantity of the imported goods reached the factory and the additional customs duty had been paid. The only defect was the timing of taking credit, namely, that the full credit was entered on receipt of the first lot rather than on receipt of the last lot. That procedural lapse did not affect the substantive entitlement to Modvat credit. The denial of credit on this ground alone was held to be an unfair and overly technical reading of the excise rules, and the penalty based on the same alleged violation could not stand.

Conclusion: The assessee was entitled to Modvat credit, and the demand and penalty were set aside.

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