Procedural non-compliance in job-work movement did not defeat Modvat credit where duty-paid inputs and manufacturing linkage were established.

Modvat credit could not be denied solely because inputs were sent directly from the supplier to a job worker without strict compliance with the modified Rule 57F(2) procedure. The inputs were duty-paid, endorsed in the gate pass in favour of the assessee, and used in manufacture of the final product, while challans had been issued for the job-work movement. The procedural requirement of prior permission and prescribed dispatch formalities was treated as a safeguard for correlation, not a substantive condition overriding entitlement. Credit was therefore allowed and the order denying Modvat benefit was set aside.

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Issues: Whether Modvat credit could be denied merely because inputs were sent directly from the supplier to the job worker without strict adherence to the modified procedure under Rule 57F(2).

Analysis: The relevant inputs were duty-paid, were endorsed in the gate pass in favour of the assessee, and were used in the manufacture of the final product. The assessee had earlier been granted the facility under Rule 57F(2) and had also issued challans for the job-work movement. The requirement of permission and the associated procedure were treated as procedural safeguards meant to establish proper correlation between duty-paid inputs and the finished goods. On these facts, the procedural lapse in not following the modified dispatch procedure strictly was not considered sufficient to deny the substantive Modvat benefit.

Conclusion: Denial of Modvat credit was not justified. The issue was decided in favour of the assessee.

Final Conclusion: The order denying credit was set aside and the appeal succeeded because procedural irregularity in the movement of inputs to the job worker did not override the substantive entitlement to Modvat credit.

Ratio Decidendi: Procedural non-compliance in following the prescribed job-work movement procedure cannot defeat Modvat credit where duty-paid inputs, their correlation with the final product, and the substantive conditions for credit are otherwise established.

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