Modvat credit for temporarily stored inputs outside the factory cannot be denied where receipt and use in manufacture are undisputed.

Modvat credit could not be denied where duty-paid inputs were admittedly received in the factory and used in manufacture, even though they had been temporarily stored in godowns outside the factory for business reasons. Recognised departmental circulars and trade notices accepted such outside storage, so temporary storage alone did not disentitle the assessee from credit. On those admitted facts, penalty was also unsustainable and the impugned order was set aside.

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Issues: Whether Modvat credit could be denied on the ground that duty-paid partially oriented yarn was stored for a short period in godowns outside the factory before being brought into the factory for use, and whether penalty was sustainable on that basis.

Analysis: There was no dispute about receipt of the inputs in the factory and their actual use in the manufacture of the final product. The Board's circular and the Commissioner's trade notices recognized storage of inputs outside the factory premises, and the Tribunal treated such storage, when occasioned by business exigencies, as not a valid ground to deny otherwise available credit. On the admitted facts, denial of credit and imposition of penalty were unwarranted.

Conclusion: Modvat credit could not be denied merely because the inputs were temporarily stored outside the factory premises, and the penalty was not sustainable.

Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Temporary storage of duty-paid inputs outside the factory premises does not by itself disentitle an assessee from Modvat credit where receipt and use of the inputs in manufacture are undisputed and the practice is recognized by departmental circulars.

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