CENVAT credit on fire-damaged inputs and capital goods remains admissible when goods were used in manufacture and insurance excluded the credit element.

CENVAT credit on duty-paid inputs and capital goods lost in a fire remained admissible where the goods had already been used in manufacture and the insurer's certificate showed that the Modvat/CENVAT element was not included in the insurance claim. The mere filing of an insurance claim did not by itself make the credit inadmissible. The earlier precedent was distinguished because it involved inputs destroyed before being issued for manufacture, whereas here the goods had already entered the manufacturing process and the capital goods had been in use. The denial of credit was therefore unsustainable.

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Issues: Whether CENVAT credit on inputs and capital goods destroyed in a fire accident could be denied merely because an insurance claim had been filed, when the goods had already been used in the manufacture of final products.

Analysis: The credit was denied on the footing that the assessee had claimed insurance for the loss of the damaged goods and capital goods. That basis failed because the assessee produced a certificate from the insurer showing that the Modvat/CENVAT element was not entertained in the insurance claim. The distinction from the earlier precedent relied on by the lower authority was material: in that case the inputs had been destroyed before being issued for manufacture, whereas here the inputs had already gone into the manufacturing process and the capital goods had been in use. The settled position applied was that when duty-paid inputs and capital goods are actually used in manufacture and are later lost in a fire, the credit does not become inadmissible merely because of the accidental loss.

Conclusion: The denial of CENVAT credit was unsustainable and the credit was admissible to the assessee.

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