Modvat credit on fire-damaged inputs remains admissible after manufacturing begins, and an unsupported insurance objection cannot defeat it.

Modvat credit was treated as admissible where inputs were destroyed in a fire after they had entered the manufacturing process, since prior decisions had accepted credit in such circumstances. The fact that the goods were insured did not by itself justify denial of credit, because the assessee stated that no excise duty claim was made from the insurer and the Revenue produced no evidence to rebut that assertion. The stated principle is that post-process destruction of inputs does not automatically defeat credit, and an unsubstantiated insurance objection is insufficient to deny admissibility.

---

---

Issues: Whether Modvat credit was admissible on inputs destroyed in a fire after the manufacturing process had commenced, and whether the credit could be denied on the ground that the value of the goods was claimed from the insurer.

Analysis: The inputs were admittedly destroyed in a fire in the blow room of the factory after the manufacturing operations had already commenced. The Tribunal relied on earlier decisions holding that where inputs are destroyed after entering the manufacturing process, credit remains admissible. On the insurance aspect, the appellant specifically stated in reply to the show cause notice that no claim for excise duty was made from the insurer, and the Revenue produced no evidence to disprove that assertion.

Conclusion: Modvat credit was admissible and the denial of credit was not sustainable.

Ratio Decidendi: Where inputs are destroyed after entering the manufacturing process, Modvat credit cannot be denied merely because the goods were lost in fire, and an unsubstantiated insurance-related objection does not by itself displace admissibility of the credit.

---