Modvat credit and administrative instructions: inevitable processing loss did not bar credit, and departmental limits did not curtail adjudicatory power.

Modvat credit was held admissible where inputs suffered inevitable burning loss during die-casting, because the loss was recorded in challans and the factual burning loss was not disputed; denial of credit on the ground of invisible loss was therefore unjustified. An adjudication order was also not invalidated merely because the Assistant Commissioner decided a case involving duty above the departmental instruction limit, since administrative instructions do not curtail statutory adjudicatory power or invalidate proceedings under the Act and Rules. The appeal was dismissed on both the credit issue and the jurisdiction objection.

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Issues: (i) whether Modvat credit on inputs lost as burning loss was recoverable; (ii) whether an adjudication order was vitiated because the Assistant Commissioner adjudicated a case involving duty exceeding Rs. 50,000 pursuant to administrative instructions.

Issue (i): whether Modvat credit on inputs lost as burning loss was recoverable.

Analysis: The challans issued by the job worker recorded the burning losses. The factual position was that aluminium ingots were melted for die-casting and some quantity was inevitably lost in the process. The finding that the loss was attributable to burning during processing was not controverted. On that basis, the denial of credit on the ground that part of the inputs was lost in the form of invisible losses was not justified.

Conclusion: Modvat credit was not recoverable merely because the inputs suffered burning loss in the course of manufacture, and this issue was decided in favour of the assessee.

Issue (ii): whether an adjudication order was vitiated because the Assistant Commissioner adjudicated a case involving duty exceeding Rs. 50,000 pursuant to administrative instructions.

Analysis: The limit relied upon by the Revenue flowed only from departmental instructions. Such instructions were administrative in character and did not create a statutory bar on the Assistant Commissioner's power to adjudicate. A breach of administrative instructions could not invalidate proceedings taken under the Act or the Rules.

Conclusion: The adjudication was not vitiated on the ground of the duty amount, and this issue was decided against the Revenue.

Final Conclusion: The appeal failed on both the merits of Modvat credit and the jurisdiction objection, and the order in appeal was sustained.

Ratio Decidendi: Administrative instructions cannot curtail statutory adjudicatory power, and Modvat credit cannot be denied on account of inevitable burning losses in the processing of inputs when the factual loss is established.

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