Modvat credit cannot be denied for excess endorsements on gate passes if genuineness and prior use are verified.

Modvat credit under Rule 57G could not be denied merely because gate passes accompanying inputs bore more than two endorsements before receipt by the claimant factory. The procedural relaxation for endorsed gate passes was intended to facilitate credit where the duty-paid nature of the goods and duty quantum could be verified. Denial on the sole ground of excessive endorsements was a mechanical approach inconsistent with the Modvat scheme. Credit remained subject to verification that the gate passes were genuine and had not been used earlier for availing credit.

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Issues: Whether Modvat credit could be denied merely because the gate passes accompanying the inputs had been endorsed more than twice before receipt by the claimant factory.

Analysis: Rule 57G required receipt of inputs under prescribed duty-related documents, and the gate pass was treated as a document for movement from the factory of manufacture to the first destination. The Board had already relaxed the procedural requirement by permitting endorsements on gate passes, and the relaxation was intended to facilitate availment of credit where the duty-paid nature of the goods and the quantum of duty could be verified. Denial of credit solely on the ground that the gate passes bore more than the administratively permitted number of endorsements was considered a mechanical approach inconsistent with the Modvat scheme. At the same time, the department retained the right to verify the genuineness of the gate passes and whether they had not been used earlier for availing credit.

Conclusion: Modvat credit could not be denied merely because the gate passes had more than two endorsements, and the assessee was entitled to the credit subject to verification of genuineness and prior utilisation.

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