MODVAT credit cannot be denied for mere procedural lapses where duty-paid inputs and returned job-work goods are verifiable.

MODVAT credit should not be denied merely for procedural non-compliance where duty-paid inputs were sent to a job worker after intimation, the processing occurred within the excise control framework, and the intermediate goods were returned to the assessee. The scheme's purpose is satisfied when contemporaneous records verify the use of inputs, manufacture of the intermediate product, and return of goods without diversion. Payment of duty by the job worker does not, by itself, bar credit if the substantive conditions of the scheme are met. The matter therefore required reconsideration on the verified facts rather than rejection on procedural grounds alone.

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Issues: Whether MODVAT credit could be denied merely because the procedural requirements under the relevant exemption and trade notice were not strictly followed when inputs were sent to a job worker and the processed goods were returned after duty had been paid at the job worker's end.

Analysis: The inputs were sent to the job worker after intimation to the authorities, and the arrangement was within the excise control framework. The purpose of the MODVAT scheme is to ensure that duty-paid inputs are used in the manufacture of intermediate goods which return to the assessee, without diversion, while complying with the safeguards in the rules. A mere procedural lapse does not justify denial of the credit where the factual use of inputs, manufacture of the intermediate product, and return of the goods can be verified from the contemporaneous records. Payment of duty by the job worker does not, by itself, bar the concession where the essential conditions for the scheme are otherwise satisfied.

Conclusion: MODVAT credit could not be denied solely on the ground of procedural non-compliance, and the matter required fresh examination on the facts.

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