Modvat credit on duty-paid inputs cannot be denied for procedural lapse when dutiability and input use are established.

Modvat credit was available on duty-paid inputs used in manufacture of the final product, even though the assessee had not followed the claimed provisional procedure. Once the assessee accepted the dutiability of the final product and withdrew the challenge to denial of exemption, credit had to be determined on the basis of the inputs actually used. Procedural non-compliance could not defeat the substantive benefit where gate passes and related documents were produced for verification, and the authorities were required to compute and extend the credit accordingly.

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Issues: Whether Modvat benefit was available on duty paid inputs used in manufacture of the final product, notwithstanding the assessees failure to follow the claimed provisional procedure, once the assessee accepted the dutiability of the final product and withdrew the challenge to the exemption denial.

Analysis: The product was treated as dutiable after the assessee accepted the assessment and withdrew the refund claim. In that situation, the entitlement to Modvat credit had to be worked out on the basis of the duty-paid inputs actually used in manufacture. A procedural requirement could not defeat the substantive benefit available under the Modvat scheme when the supporting gate passes and related documents were produced for verification.

Conclusion: Modvat benefit was admissible and the authorities were directed to compute and extend the credit on the basis of the input documents and gate passes produced.

Ratio Decidendi: Procedural non-compliance cannot be used to deny a substantive Modvat benefit where the duty-paid inputs and their use in manufacture are established and the final product is accepted as dutiable.

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