Mandatory dealer invoice serial number condition justified Modvat credit denial, but penalty on the recipient manufacturer was unsustainable.

A dealer invoice bearing a printed serial number under Rule 57GG(5) was treated as a mandatory condition for Modvat credit, not a mere procedural formality, so non-compliance justified denial of credit even though the goods were received and used by the manufacturer. The recipient manufacturer's penalty was, however, unsustainable because the default was the dealer's lapse and the assessee had already suffered denial of credit on that basis. The credit denial was sustained, but the penalty was deleted.

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Issues: (i) whether Modvat credit could be denied when the dealer's invoice did not bear a printed serial number as required by Rule 57GG(5); (ii) whether penalty could be imposed on the assessee for the dealer's lapse.

Issue (i): Whether Modvat credit could be denied when the dealer's invoice did not bear a printed serial number as required by Rule 57GG(5).

Analysis: The requirement that each invoice bear a printed serial number was held to be mandatory, not merely procedural. The rule was treated as a control measure for dealer-issued invoices, and non-compliance was considered capable of affecting the availability of credit even where the goods were otherwise received and used by the manufacturer. The earlier decisions cited were distinguished because they dealt with different notification requirements and, on the facts, did not govern the present dispute.

Conclusion: Modvat credit was rightly denied.

Issue (ii): Whether penalty could be imposed on the assessee for the dealer's lapse.

Analysis: Although the credit was denied because the invoice requirement was not met, the assessee had already suffered the consequence of the dealer's default. In that setting, imposition of penalty on the user manufacturer was found to be unjustified.

Conclusion: Penalty on the assessee was not sustainable and was set aside.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalty, while the denial of Modvat credit was sustained.

Ratio Decidendi: Where a statutory invoice condition governing dealer-issued invoices is mandatory, non-compliance can justify denial of Modvat credit, but penalty need not follow against the recipient manufacturer if the default is solely that of the dealer.

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