Remission of duty for accident-damaged goods, with no reversal of Modvat credit where inputs were already used in manufacture.

Finished goods damaged or destroyed by accident may qualify for remission of duty where the loss occurs by fire or similar mishap during handling or storage, and the inputs had already been issued for manufacture without evidence of diversion. On that basis, Modvat credit taken on inputs used in those goods is not required to be reversed merely because the finished goods were damaged. The Tribunal also referred to the Board circular recognising remission eligibility in cases of destruction or damage by fire or accident, and the assessee's claim for remission and retention of credit was accepted.

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Issues: Whether remission of duty was admissible on finished goods damaged or destroyed by accident and whether the Modvat credit taken on inputs used in such goods was required to be reversed.

Analysis: The Tribunal accepted that the goods had been damaged or destroyed by accident and that the inputs had already been issued for manufacture, with no diversion of goods shown. It followed its earlier view that where destruction occurs by fire or similar accident during handling or storage, remission is available under the applicable rules and input credit is not liable to reversal merely because the finished goods were damaged. It also noted the Board circular clarifying eligibility for remission in cases of destruction or damage by fire or accident.

Conclusion: The assessee was entitled to remission of duty and was not required to reverse the Modvat credit. The impugned order was set aside and the appeal was allowed.

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