Modvat credit to bona fide purchasers cannot be denied on technical grounds where duty-paid invoices and receipt are established.

Modvat credit cannot be denied to a bona fide purchaser merely because the manufacturer's duty liability is said not to have been fully discharged, where duty-paid invoices and the manufacturer's stamp evidence payment and no material shows the certificate to be false or recovery proceedings to have been started. Credit also cannot be denied on the technical ground that the goods were routed through a government undertaking acting as agent, when the invoice was issued by the manufacturer, the goods were received as dutiable goods, and their use in the final products is undisputed. The operative principle is that technical objections do not defeat credit where the duty element and receipt of goods are established.

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Issues: (i) Whether Modvat credit could be denied on the ground that the manufacturer had not fully discharged the duty liability. (ii) Whether Modvat credit could be denied because the goods were not purchased directly from the manufacturer and the claim was made under Notification No. 58/97.

Issue (i): Whether Modvat credit could be denied on the ground that the manufacturer had not fully discharged the duty liability.

Analysis: The credit claim was supported by duty-paid invoices bearing the manufacturer's stamp showing discharge of duty under Rule 96ZP(3). There was no material to show that the certificate was false or incorrect, and no recovery proceedings had been initiated against the manufacturer. In these circumstances, the purchasers were bona fide buyers who had paid a price including the duty element.

Conclusion: Modvat credit could not be denied on this ground, and the finding was in favour of the assessee.

Issue (ii): Whether Modvat credit could be denied because the goods were not purchased directly from the manufacturer and the claim was made under Notification No. 58/97.

Analysis: The goods were ordered through another government undertaking acting as an agent, and the invoice was issued by the manufacturer with reference to that order. The receipt of dutiable goods and their use in the final products was not in dispute. On these facts, the indirect routing of the purchase did not alter the character of the transaction as one from a manufacturer for the purpose of the credit claim.

Conclusion: Modvat credit could not be denied on this technical ground, and the finding was in favour of the assessee.

Final Conclusion: The impugned denial of Modvat credit was unsustainable, and the appeals succeeded with consequential relief as permissible in law.

Ratio Decidendi: Modvat credit cannot be denied to a bona fide purchaser on technical grounds where duty-paid invoices evidence discharge of duty, the authenticity of the duty certificate is unchallenged, and the goods are admittedly received and used in the final products.

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