Modvat credit for moisture loss in duty-paid inputs remains admissible when only evaporation occurs during storage or processing.

Modvat credit remains admissible where duty-paid inputs are received in full and only moisture content evaporates during storage or feeding into manufacture. The applicable scheme treats credit by reference to the duty-paid inputs received in the factory, and negligible process-related moisture loss does not justify denial of credit when the inputs themselves are not lost before use. A contrary authority on loss of inputs was distinguished because it concerned loss of the input itself, not mere evaporation of moisture. The operative principle is that physical non-incorporation of moisture in the final product does not, by itself, defeat credit on the received duty-paid input.

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Issues: Whether Modvat credit is admissible on the portion of input lost only by evaporation of moisture during storage and use in manufacture.

Analysis: The inputs were received in full quantity and duty had been paid on the entire weight, including moisture content. The loss complained of was only a negligible moisture loss occurring during storage or during feeding into the cement mill, and not a case of the inputs themselves being lost before use. The applicable Modvat scheme treated credit with reference to the duty-paid inputs received in the factory, and the reasoning accepted that invisible or process-related moisture loss did not justify denial of credit where the full consignment had been received and no claim was made against the supplier for the loss. The cited contrary authority on loss of inputs was distinguished because it dealt with loss of the input itself, not merely moisture content.

Conclusion: Modvat credit was held admissible on the moisture-lost portion, and the issue was answered in favour of the assessee.

Ratio Decidendi: Where duty-paid inputs are received in full and only moisture content is lost by evaporation during storage or processing, credit cannot be denied merely because that moisture is not physically incorporated in the final product.

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