Concessional duty benefit for inputs destroyed during manufacture remained available where the goods had already entered the production process.

Imported inputs taken for use in manufacturing were treated as having been used for manufacture once issued into the production process. Their destruction in a fire before completion of manufacture was held to be manufacturing loss, not non-use for the purpose of denying concessional duty. The conditions for refusing the benefit of Notification No. 36/96-Cus. were therefore not satisfied, and the concession remained available to the assessee.

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Issues: Whether the benefit of Notification No. 36/96-Cus. was available when imported goods taken for use in manufacture were destroyed in a fire before the manufacture was completed.

Analysis: The imported goods had been brought in at concessional duty and were admittedly taken for use in the manufacture of excisable goods. The decisive consideration was that once the inputs were issued for manufacture, they became work in process and their destruction in fire during that process could not be treated as non-use in manufacture. The same factual treatment applied to the imported inputs as had already been accepted in relation to Modvat credit, namely that damage during the manufacturing stage amounted to manufacturing loss. On that basis, the conditions for denying the concession were not made out.

Conclusion: The benefit of the notification could not be denied. The appeal was allowed in favour of the assessee.

Ratio Decidendi: Inputs taken for the manufacturing process are treated as used for manufacture, and destruction of such inputs during that process does not by itself defeat entitlement to a concessional duty benefit tied to use in manufacture.

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