Modvat credit cannot be denied for procedural defects alone when receipt, defacement, and use of inputs are established.

Modvat credit was treated as admissible where the inputs were received in the factory, defaced by the proper officer, and used in the manufacture of final products, because the distributor's lack of registration at the relevant time was only a procedural defect and did not by itself justify denial of credit. The Tribunal also held that credit could not be rejected on grounds drawn from notifications, trade notices or a Board circular when those specific bases were not set out in the show cause notice. On that reasoning, the departmental appeals were rejected.

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Issues: Whether Modvat credit could be denied on invoices issued by an unregistered distributor which did not contain all the prescribed particulars, and whether the adjudicating authority could reject the credit on grounds not set out in the show cause notice.

Analysis: The invoices and the departmental record showed that the goods had been received in the factory, defaced by the proper officer, and used in the manufacture of final products. The Tribunal accepted that the absence of registration of the dealer at the relevant time was only a procedural defect and did not, by itself, justify denial of credit where substantive receipt and use of inputs were not disputed. It also found that the order of the lower authority had relied on notifications, trade notices and the Board's circular in a manner not reflected in the show cause notice, and that such a course was not sustainable when the notice itself was silent on the specific basis of denial.

Conclusion: Modvat credit was held admissible, and the departmental appeals were rejected.

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