Modvat credit cannot be denied for procedural lapses when duty-paid inputs are used in manufacture and procedure is otherwise followed.

Modvat credit cannot be denied for a mere procedural lapse where duty-paid inputs were received and used in manufacture. The absence of a fresh declaration after shifting factory premises did not justify denial because the amendment to Rule 57G and the contemporaneous Board circular allowed minor filing defects to be overlooked. Credit also could not be denied for inputs sent directly to a job worker where the prescribed procedure was followed and the credit remained unutilised; no substantive infraction was shown. The impugned order was set aside, and the assessee succeeded on both issues.

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Issues: (i) Whether Modvat credit could be denied for failure to file a fresh declaration after shifting the factory premises when the inputs had suffered duty and were used in manufacture; (ii) Whether Modvat credit could be disallowed in respect of inputs sent directly to a job worker when the prescribed procedure had been followed and the credit was not utilised.

Issue (i): Whether Modvat credit could be denied for failure to file a fresh declaration after shifting the factory premises when the inputs had suffered duty and were used in manufacture.

Analysis: The amendment to Rule 57G of the Central Excise Rules, 1944, along with the contemporaneous Board circular, empowered the Assistant Commissioner to ignore minor procedural lapses in filing declarations or invoices where duty-paid inputs were received and used in manufacture. Since the duty-paid character of the inputs and their use in the final products was undisputed, the mere absence of a fresh declaration after shifting the factory could not justify denial of credit.

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

Issue (ii): Whether Modvat credit could be disallowed in respect of inputs sent directly to a job worker when the prescribed procedure had been followed and the credit was not utilised.

Analysis: The record showed compliance with the Board-prescribed procedure for sending inputs directly to the job worker. The Revenue did not dispute that the procedure had been followed, and the only objection was that the credit was taken in the books immediately. As the credit was not utilised and no substantive infraction was shown, there was no basis to deny the credit.

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

Final Conclusion: The impugned order was set aside and the appeal succeeded in full on both questions decided.

Ratio Decidendi: Substantive Modvat credit cannot be denied for a mere procedural lapse when the duty-paid inputs are received and used in manufacture and the prescribed procedure is otherwise complied with.

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