Modvat credit survives correctable invoice defects when duty payment and actual use in manufacture are undisputed.
Modvat credit could not be denied for a correctable invoice defect where the inputs were duty-paid, used in manufacture, and the final products were cleared on payment of duty. The appellate authority also could not rely on objections not raised in the show cause notice, including physical segregation and compliance with Rule 173H or Rule 173L. Credit was therefore held admissible, and the denial was set aside because the invoice error alone did not defeat substantive entitlement.
Issues: Whether Modvat credit could be denied on the basis that the invoice originally stood in the name of the Surat customer and whether procedural objections not forming part of the show cause notice could be relied upon to reject the credit.
Analysis: The notice proceeded on the footing that credit had been taken on an invoice issued by the Ratnagiri factory in favour of the Surat buyer, whereas the appellate order introduced additional objections relating to physical segregation and compliance with Rule 173H or Rule 173L, which were not alleged in the notice. Findings travelling beyond the show cause notice could not be sustained. On the substantive aspect, a defect in the invoice was held to be condonable where duty payment, use of the inputs in manufacture, and clearance of the final products on payment of duty were not in dispute. Since there was no allegation that the goods were non-duty-paid or not used in manufacture, the invoice required only appropriate correction and credit could not be denied merely on that account.
Conclusion: Modvat credit was admissible and the denial of credit was unsustainable.
Final Conclusion: The appeal was allowed and the orders of the lower authorities were set aside.
Ratio Decidendi: Credit under the excise scheme cannot be denied for a correctable invoice defect or on grounds outside the show cause notice when duty payment and actual use of inputs in manufacture are not in dispute.
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AI Drafter ✕
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