Modvat credit on job-work inputs cannot be denied for mere procedural lapse when substantive eligibility is satisfied.

Otherwise admissible Modvat credit could not be denied merely because inputs were sent directly to a job worker without strict compliance with the prescribed procedure, where the movement was covered by Rule 57J read with Notification No. 351/86-C.E. The procedural lapse in following the trade notice or notification requirements did not defeat credit when the processed goods were received back in the factory and the record did not show absence of duty-paying documents. On that footing, the denial of credit was unsustainable and the penalty could not be upheld.

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Issues: Whether Modvat credit could be denied and penalty sustained merely because inputs were sent directly to a job worker and the prescribed procedure was not followed, where the credit was otherwise eligible under Rule 57J read with Notification No. 351/86-C.E.

Analysis: The inputs were found to have moved directly to the job worker, a situation covered by Rule 57J. The prescribed notification governing such direct movement applied to the period in dispute, and non-compliance with its procedure was treated as a procedural lapse. The fact that the goods were processed at the job worker's premises did not destroy the availability of credit, because the credit was taken only after receipt of the processed goods back in the factory. The record also did not establish absence of duty-paying documents. A procedural violation of trade notice requirements could not defeat otherwise admissible Modvat credit.

Conclusion: The denial of Modvat credit was unsustainable and the penalty could not be upheld.

Final Conclusion: The proceedings were set aside and the appeals succeeded on the footing that a mere procedural lapse in job-work movement could not defeat substantively admissible credit.

Ratio Decidendi: Otherwise admissible Modvat credit cannot be denied, and penalty cannot be imposed, merely for non-observance of procedural requirements governing job-work movement when the substantive conditions for credit are satisfied.

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