Modvat credit on capital goods destroyed in fire need not be reversed when goods were validly used and not cleared as such.

Modvat credit validly taken on capital goods and used in the factory for several years was not required to be reversed merely because those goods were later destroyed in fire, since they were neither cleared nor sold as such. For finished goods, semi-finished goods and inputs fully destroyed in fire, the duty demand and reversal of credit were also not sustainable, as the destruction was accepted on facts and the Tribunal relied on the Larger Bench view that credit on such destroyed inputs need not be reversed. The challenge failed because no substantial question of law arose from the Tribunal's order.

---

---

Issues: (i) whether modvat credit taken on capital goods was liable to reversal when the capital goods had been used for several years and were later destroyed in fire; (ii) whether duty or cenvat credit was payable or reversible in respect of finished goods, semi-finished goods and inputs destroyed in fire.

Issue (i): whether modvat credit taken on capital goods was liable to reversal when the capital goods had been used for several years and were later destroyed in fire.

Analysis: The capital goods had been lawfully taken into credit, used in the factory for about four to seven years, and were thereafter destroyed in the fire. The legal basis for reversal of such credit was not attracted merely because the goods were subsequently destroyed. The record showed that the capital goods were neither cleared as such nor sold, and the Tribunal's view rested on the fact that the credit had been validly availed and the goods had already been put to use.

Conclusion: Reversal of modvat credit on the capital goods was not warranted.

Issue (ii): whether duty or cenvat credit was payable or reversible in respect of finished goods, semi-finished goods and inputs destroyed in fire.

Analysis: The destruction of the finished goods, semi-finished goods and related inputs in fire was found as a matter of fact, and the adjudicating authority had not disputed their full destruction. The Tribunal followed the Larger Bench view that credit on inputs destroyed in fire was not required to be reversed. No perversity, legal error, or omission of relevant material was shown in that approach.

Conclusion: Duty demand and reversal of credit in respect of the goods destroyed in fire were not sustainable.

Final Conclusion: The challenge failed because no substantial question of law arose from the Tribunal's order, and the assessee's relief was sustained.

Ratio Decidendi: Where capital goods have been validly used and are later destroyed in fire, and where inputs or goods are found to have been fully destroyed in fire, reversal of credit is not justified in the absence of a legal provision attracted by sale or clearance as such.

---