Cenvat credit on inputs destroyed in manufacturing process cannot be denied absent diversion or misuse

Cenvat credit on inputs issued for manufacture cannot be denied merely because the inputs were destroyed during the manufacturing process due to a power failure. Where the goods had already entered the manufacturing stream and were lost or destroyed in the course of manufacture, the settled view is that credit need not be reversed, especially in the absence of diversion or misuse. Applying that principle, credit on the destroyed inputs was upheld in favour of the assessee.

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Issues: Whether Cenvat credit on inputs issued for manufacture could be denied when those inputs were destroyed during the manufacturing process due to power failure.

Analysis: The dispute concerned inputs that had already entered the manufacturing stream and were destroyed because of an electricity outage that disrupted the pot lines. The settled view applied was that where inputs are actually issued for manufacture and are lost or destroyed during the course of manufacture, credit cannot be denied merely because the final product was not completed from those inputs. The prior line of decisions relied upon recognised that destruction of inputs in such circumstances does not require reversal of credit, particularly where there is no diversion or misuse of the goods.

Conclusion: Cenvat credit on the destroyed inputs could not be denied and the issue was answered in favour of the assessee.

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