Modvat credit on imported inputs cannot be denied for procedural lapse when duty-paid goods are used in dutiable manufacture.

Modvat credit on additional customs duty paid on imported copper bars was allowable where the bars were used, through a job worker, to make copper rods for dutiable final products. The fact that the job worker paid duty on the intermediate rods did not extinguish the importer's input credit entitlement, particularly as no credit was taken on those inputs at the job worker's end. Non-compliance with Rule 57F(2) was treated as a procedural lapse and was not sufficient to deny a substantive Modvat benefit. The arrangement was also revenue neutral and caused no prejudice to the Revenue.

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Issues: Whether the assessee was entitled to Modvat credit of the additional customs duty paid on imported copper bars that were sent for job work conversion into copper rods, notwithstanding non-compliance with the procedural requirement under Rule 57F(2) and the fact that the job worker paid duty on the intermediate product.

Analysis: The imported copper bars had suffered additional customs duty, which was otherwise admissible as Modvat credit under Rule 57A. The denial of credit on the footing that the job worker had paid duty on the converted rods at a concessional rate was based on an incorrect premise. The duty paid at the job worker's end did not extinguish the assessee's entitlement to credit on the inputs, especially since the job worker had not taken credit on those inputs. The procedural lapse under Rule 57F(2) did not justify denial of a substantive benefit where the goods were ultimately used in the manufacture of final products covered by the Modvat scheme. The transaction was also revenue neutral and caused no prejudice to the Revenue.

Conclusion: The assessee was entitled to Modvat credit of the additional customs duty paid on the imported copper bars, and the benefit could not be denied merely because the intermediate processing was done by a job worker who paid duty on the rods.

Ratio Decidendi: A substantive Modvat entitlement cannot be denied for mere procedural non-compliance where the duty-paid inputs are used in the manufacture of dutiable final products and the transaction is revenue neutral.

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