Modvat credit remains admissible when inputs are destroyed after manufacture has already commenced.

Modvat credit was held admissible where the inputs were destroyed by fire after manufacturing operations had already commenced. The denial was based on the assumption that destruction occurred before manufacture began, but the appellate finding accepted that production had started and that the fire occurred at the second stage after initial blending. On that factual basis, the premise for disallowance failed, and the departmental challenge was rejected. The stated principle is that destruction of inputs after commencement of manufacture does not, by itself, justify denial of Modvat credit on the ground that manufacture had not begun.

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Issues: Whether Modvat credit was admissible where the inputs were destroyed by fire after manufacturing operations had commenced.

Analysis: The credit had been denied on the footing that the inputs were destroyed before manufacture started. The appellate finding accepted that the manufacturing process had already commenced and that the fire occurred at the second stage of production, after the initial blending stage. On that factual basis, the denial of credit could not be sustained.

Conclusion: Modvat credit was admissible and the departmental challenge failed.

Ratio Decidendi: Where inputs are destroyed after the manufacturing process has already commenced, denial of Modvat credit solely on the premise that destruction occurred before manufacture began is unsustainable.

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