Modvat credit on transit-broken inputs denied where breakage occurred before factory receipt, making Rule 57D inapplicable.

Modvat credit was not admissible on inputs found broken during transit before receipt in the factory, because Rule 57D applies only where inputs are lost or destroyed in the course of manufacture. The record supported the adjudicating authority's finding that the breakage occurred during transportation, so the Commissioner (Appeals) erred in assuming the damage happened after factory receipt without evidentiary basis. The allowance of credit and deletion of penalty were therefore unsustainable, and the matter required remand for fresh decision after hearing both sides.

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Issues: Whether Modvat credit was admissible on inputs found broken during transit to the factory, and whether the Commissioner (Appeals) was justified in allowing the credit and setting aside the penalty.

Analysis: The credit had been taken on inputs that were admitted to have been broken before their arrival in the factory, and the evidentiary material relied upon by the adjudicating authority supported that position. Rule 57D did not assist the assessee because it applies where inputs are lost or destroyed in the course of manufacture, not where breakage occurs during transportation before receipt in the factory. The Commissioner (Appeals) proceeded on an incorrect assumption that the breakage occurred after arrival in the factory during manufacture, without support from the record and without properly dealing with the findings of the adjudicating authority.

Conclusion: The allowance of Modvat credit and the setting aside of the penalty could not be sustained, and the matter required remand for fresh decision after hearing both sides.

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