Modvat credit cannot be denied for procedural lapses where duty-paid inputs are actually used in manufacture through a job worker.

Modvat credit on duty-paid lacquer used through a job worker cannot be denied merely for non-compliance with procedural requirements when the inputs were actually used in manufacture and the substantive conditions of the scheme were satisfied. The controlling principle is that procedural rules facilitate administration of the scheme, but they do not override substantive entitlement where duty payment and use in final products are undisputed. On that basis, the commentary states that strict procedural lapse alone is insufficient to defeat credit.

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Issues: Whether Modvat credit could be denied for input lacquer used through a job worker on the ground of non-compliance with procedural requirements under the Modvat scheme.

Analysis: The reference turned on the distinction between substantive entitlement under the Modvat scheme and procedural requirements governing receipt, movement, and use of inputs through a job worker. The Court accepted the later judicial approach that where duty-paid inputs are actually used in the manufacture of final products and the substantive conditions of the scheme are satisfied, mere procedural irregularities do not justify denial of credit. The controlling principle was that procedural conditions serve the administration of the scheme, while failure to strictly comply with them cannot defeat the substantive benefit when the underlying duty payment and use in manufacture are not in dispute.

Conclusion: Modvat credit was not liable to be denied merely because the inputs were used by a job worker and the prescribed procedure was not fully followed; the issue was answered in favour of the assessee.

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