Modvat credit cannot be denied for a minor procedural lapse when entitlement is otherwise proved and the error is promptly corrected.

A minor procedural omission in RG 23A Part I was treated as insufficient to deny Modvat credit where the assessee itself detected the error, reported it before the show cause notice, and produced records showing receipt and use of the inputs. The Tribunal applied the principle that a substantive credit benefit should not be denied for a technical lapse when entitlement is otherwise established. On that basis, denial of Modvat credit was held unjustified and the penalty was also unsustainable.

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Issues: Whether Modvat credit could be denied and penalty sustained for an inadvertent procedural omission in maintaining RG 23A records, when the lapse was detected, reported, and rectified by the assessee.

Analysis: The omission in the RG 23A Part I entry was found to be a minor technical lapse. The assessee had itself detected the error, reported it to the department before issuance of the show cause notice, and produced supporting documents showing receipt and utilisation of the inputs. The Tribunal applied the principle that a substantive benefit should not be denied merely for a minor procedural infraction when the entitlement is otherwise established.

Conclusion: Denial of Modvat credit was not justified, and the penalty was also unsustainable. The appeal was allowed and the impugned orders were set aside.

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