Remission of duty on destroyed goods does not amount to exemption, so Modvat credit on inputs remained admissible.

Modvat credit on inputs used in manufacturing finished goods could not be denied merely because the finished goods were later destroyed with departmental permission and duty was remitted under Rule 49. Remission of duty on destroyed goods was not treated as an exemption or as goods chargeable to nil rate of duty for Rule 57C purposes. Since the inputs had already been used in manufacture and the destruction occurred after intimation to the Department, Rule 57C did not apply and the credit remained admissible.

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Issues: Whether Modvat credit on inputs used in the manufacture of finished goods that were destroyed with the Department's permission after being found unmarketable could be denied under Rule 57C of the Central Excise Rules, 1944.

Analysis: The inputs had admittedly been used in the manufacture of the final product. The finished goods were destroyed only after intimation to the Department and on permission being granted with remission of duty under Rule 49. The mere fact that the final product did not ultimately suffer duty because of such remission did not make the case one of exemption or goods chargeable to nil rate of duty for the purpose of Rule 57C. The situation was also not covered by Rule 57D, since the credit dispute arose after the inputs had already been used in manufacture and the goods were destroyed due to circumstances beyond the assessee's control. The principle applied was that remission of duty on destroyed goods is not equivalent to a general exemption from duty.

Conclusion: Rule 57C could not be invoked to deny Modvat credit, and the assessee was entitled to credit on the inputs used in the destroyed final product.

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