Modvat credit cannot be denied for procedural lapses where duty is later demanded after a bona fide exemption belief.

Modvat credit could not be denied solely for failure to comply with declaration and other procedural requirements where duty was later demanded on goods cleared under a bona fide belief that no duty was payable. The Tribunal applied its earlier view that, when goods are initially removed without duty under a genuine understanding of exemption and duty is subsequently demanded, procedural lapses in the Modvat scheme do not by themselves defeat credit. Credit was therefore held not to be denied on the basis of procedural non-compliance.

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Issues: Whether Modvat credit could be denied merely because the declaration and other procedural requirements were not complied with when duty was subsequently demanded on goods cleared on the understanding that no duty was payable.

Analysis: The duty demand arose on parts of internal combustion engines cleared under Chapter X procedure on the basis that exemption was later found unavailable. The Tribunal followed its earlier view that where duty is demanded on goods on which duty had not been paid initially under a bona fide understanding that no duty was payable, credit cannot be denied solely for non-compliance with Modvat procedural requirements.

Conclusion: Modvat credit was not liable to be denied on the ground of procedural non-compliance.

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