Mandatory separate records for simultaneous Modvat credit and exemption claims can disentitle an assessee to exemption on non-compliance.

Where Modvat credit and exemption under Notification No. 202/88 are claimed simultaneously, separate records for duty-paid inputs and open-market inputs are mandatory to enable segregation and departmental verification. The absence of such records is not treated as a mere technical lapse, and a later attempt to reconstruct entries from daily journals is insufficient. Non-compliance with the prescribed record-keeping procedure therefore disentitles the claimant to the exemption.

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Issues: (i) Whether exemption under Notification No. 202/88 could be availed for wire rods obtained from the open market without maintaining separate records when Modvat credit was also being availed for duty-paid inputs. (ii) Whether the benefit of exemption could be denied on the ground of a procedural lapse in maintaining the required records.

Issue (i): Whether exemption under Notification No. 202/88 could be availed for wire rods obtained from the open market without maintaining separate records when Modvat credit was also being availed for duty-paid inputs.

Analysis: Separate records were required for inputs used under the Modvat scheme and for inputs used to claim exemption under Notification No. 202/88. The requirement served the purpose of segregation, verification, and proper departmental checking. Mere absence of an entry in Modvat records did not establish that a separate record for the open-market inputs had been maintained.

Conclusion: Exemption was not available in the absence of separate records, and the finding was against the assessee.

Issue (ii): Whether the benefit of exemption could be denied on the ground of a procedural lapse in maintaining the required records.

Analysis: The prescribed procedure in Trade Notice No. 85-C.E./88 dated 8-9-1988 had to be followed where Modvat benefit and exemption were simultaneously claimed for the same input and final product. The lapse was not treated as a mere technical defect, and a later attempt to reconstruct records from daily journal entries was not accepted.

Conclusion: The benefit could be denied for non-compliance with the prescribed procedure, and the finding was against the assessee.

Final Conclusion: The appeal of the Revenue succeeded, and the exemption claim failed because the mandatory record-keeping requirement was not satisfied.

Ratio Decidendi: Where exemption and Modvat credit are simultaneously claimed, maintenance of separate records is a mandatory procedural requirement, and its absence disentitles the claimant to the exemption.

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