Non obstante Modvat credit rule prevails over procedural time limits, so credit denial and penalty were unsustainable.

Rule 57J, being a non obstante provision, prevailed over the sixty-day receipt condition and extension requirement under Rule 57F(4), so Modvat credit could not be denied where the assessee had operated under the Rule 57J job-work procedure and the substantive conditions were met. The denial of credit was therefore unsustainable and credit was restored. Because any lapse was only procedural and the credit claim itself was valid, penalty was also not warranted. The penalty was set aside and consequential relief followed.

---

---

Issues: (i) Whether Modvat credit could be denied on the ground that the intermediate goods were received beyond sixty days and extension of time was not granted under Rule 57F(4), when the assessee was operating under Rule 57J. (ii) Whether penalty was sustainable in the facts of the case.

Issue (i): Whether Modvat credit could be denied on the ground that the intermediate goods were received beyond sixty days and extension of time was not granted under Rule 57F(4), when the assessee was operating under Rule 57J.

Analysis: Rule 57J(1) begins with a non obstante clause and therefore prevails over inconsistent procedural requirements in other rules. The assessee was admittedly working under Rule 57J, sending inputs directly to the job worker and receiving intermediate goods for use in the manufacture of final products. In that situation, the sixty-day condition and related extension requirement under Rule 57F(4) could not be imported to deny credit. The mere fact that extension was sought under the common challan procedure did not take the assessee out of Rule 57J. The substantive requirements of the credit scheme stood complied with.

Conclusion: The denial of Modvat credit was unsustainable and the credit was allowed in favour of the assessee.

Issue (ii): Whether penalty was sustainable in the facts of the case.

Analysis: Since the credit denial itself could not be sustained and the lapse, if any, was only procedural in nature, penalty was not warranted. The case did not justify penal consequences where the substantive entitlement under the scheme had been met.

Conclusion: The penalty was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order was set aside, Modvat credit was restored, and the assessee was held entitled to consequential relief.

Ratio Decidendi: Where a provision containing a non obstante clause governs the transaction, inconsistent procedural requirements in another rule cannot be imported to defeat substantive credit entitlement, and a merely technical breach does not justify denial of credit or penalty.

---