Modvat credit for flood-destroyed finished goods remains admissible where inputs were used in manufacture.

Modvat credit remained available where inputs were used in the manufacture of final products, even though the finished goods were washed away in floods before clearance. Revenue relied on Rule 57C of the Central Excise Rules, 1944 to deny credit on the basis that no duty was paid on the final products, but the stated reasoning rejected that approach. The fact that the finished goods were destroyed before duty clearance did not break the nexus between the inputs and the manufacturing process. On that basis, the text states that denial of credit was unsustainable and credit was admissible.

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Issues: Whether Modvat credit was admissible on inputs used in the manufacture of final products that were washed away in floods.

Analysis: The dispute turned on the scope of Modvat entitlement where inputs had admittedly been used in the manufacture of final products, but the goods were lost in flood before clearance. Rule 57C of the Central Excise Rules, 1944 was relied on by Revenue to deny credit on the footing that no duty was paid on the final products. The earlier decision in the connected matter had already held that inputs used in or in relation to the manufacture of final products remain eligible for credit even when they are transformed into intermediate or semi-finished goods. That reasoning applied equally here, because the inputs had been used in the manufacturing chain and the loss of the final goods by flood did not alter that legal position.

Conclusion: Modvat credit was admissible, and the denial of credit was unsustainable.

Ratio Decidendi: Where inputs are used in or in relation to the manufacture of final products, credit cannot be denied merely because the finished goods are destroyed before duty clearance.

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