Modvat credit on cartons cannot be denied for irregular removal, and recovery needs prior notice and hearing.

Modvat credit on cartons was treated as validly taken, and it could not be denied merely because packed goods were sent out for packing through outside units in an irregular manner; the commentary applies precedent to state that procedural departure in removal did not by itself justify disallowance. Recovery of credit under Rule 57F(2) was also said to require prior notice and an opportunity of hearing, so an order passed without that procedure was invalid. On that reasoning, the disallowance and recovery could not stand and the credit was restored.

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Issues: (i) whether Modvat credit on cartons could be disallowed on the ground that the packed goods were removed outside the factory otherwise than in the prescribed manner; (ii) whether recovery of the credit was valid in the absence of notice and hearing under Rule 57F(2).

Issue (i): whether Modvat credit on cartons could be disallowed on the ground that the packed goods were removed outside the factory otherwise than in the prescribed manner.

Analysis: The credit on the cartons was validly taken, and the disallowance was made only because the cartons were sent out for packing through outside units in an irregular manner. The Tribunal's earlier decision on identical facts was applied, together with the principle recognised in the cited precedent, that such credit could not be denied merely because the procedure for removal was not followed when the credit itself was otherwise correctly taken.

Conclusion: The disallowance of Modvat credit on this ground was not sustainable.

Issue (ii): whether recovery of the credit was valid in the absence of notice and hearing under Rule 57F(2).

Analysis: Recovery of credit in a case where the credit is correctly taken but the inputs are not accounted for in the prescribed manner is governed by Rule 57F(2) of the Central Excise Rules, 1944. That provision contemplates notice and an opportunity of being heard before any adverse order. No notice had been issued before the Superintendent passed the order, so the mandatory procedure was not followed.

Conclusion: The order of recovery was invalid for breach of the statutory procedure and denial of hearing.

Final Conclusion: The impugned disallowance could not stand, and the assessee's credit was restored.

Ratio Decidendi: Where Modvat credit is correctly taken, it cannot be denied merely because the goods were removed irregularly; any recovery under Rule 57F(2) must be preceded by notice and an opportunity of hearing.

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