Modvat procedural error without revenue loss could not sustain demand where substantive duty liability was otherwise discharged.

A mere procedural miscredit or debit from the wrong account under the Modvat procedure did not sustain the demand where the inputs and outputs were covered by the scheme, the inputs were common to the declared outputs, and no revenue loss was shown. The defect was treated as a procedural lapse rather than a substantive default, and denial of credit benefit was unwarranted in the absence of demonstrated duty loss. The demand was therefore unsustainable except to the extent of the amount already deposited and not disputed, and the assessee succeeded on the remaining contested amount.

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Issues: Whether the demand could be sustained when inputs and outputs were covered by the Modvat scheme, a debit was made from the wrong account while clearing inputs as such, and the revenue effect was stated to be nil.

Analysis: The proper course under the relevant Modvat procedure was to clear the inputs after making the necessary entry in the correct account. However, the inputs were common to the declared outputs, a common account could have been maintained, and the revenue effect was found to be nil. The error was therefore treated as a procedural lapse rather than a substantive default, and the denial of credit benefit was considered unwarranted in the absence of any demonstrated duty loss.

Conclusion: The demand was not sustainable except to the extent of the amount already deposited and not contested, and the assessee succeeded on the remaining disputed amount.

Ratio Decidendi: A mere procedural miscredit or wrong account debit, without any revenue loss and where the substantive duty liability has otherwise been discharged, does not justify confirmation of demand.

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