Modvat credit on stock transfers and free supply to job workers upheld; penalty fell once credit was found admissible.

Modvat credit was treated as admissible where duty-paid inputs were received under excise invoices for use in manufacture of dutiable final products, even though the supplies moved by stock transfer or free supply to a job worker rather than a conventional sale. The Tribunal accepted that the term "sale" in the relevant notification and statutory definition could extend to stock transfers and book adjustments, so denial of credit solely for absence of a sale transaction was unsustainable. As the credit was upheld, the connected penalty also did not survive.

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Issues: Whether Modvat credit was admissible where the inputs were supplied through stock transfer or free supply to a job worker without a conventional sale transaction, and whether penalty could be sustained if the credit was admissible.

Analysis: The credit had been denied solely on the ground that the invoices were not supported by a sale transaction, but the Tribunal accepted the view that the term "sale" in the relevant notification and the statutory definition could extend to stock transfers and book adjustments. The assessee had otherwise satisfied the conditions for availing credit, including duty-paid inputs, receipt under excise invoices, proper accounting, and use in manufacture of dutiable final products. Once the credit was held admissible, the basis for penalty also disappeared.

Conclusion: Modvat credit was held admissible and the denial of credit was unsustainable; the penalty did not survive.

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