Modvat credit remains admissible for duty-paid inputs used in goods destroyed by fire despite remission of duty on the finished products.

Modvat credit on duty-paid inputs remains admissible where finished goods manufactured from those inputs are later destroyed in a fire and duty on the goods is remitted. Remission of duty under the excise framework does not amount to a general exemption or nil-rate clearance, so it does not trigger denial or reversal of input credit merely because the final products were lost after manufacture. The Board's circular and prior Tribunal decisions support this position, and denial of credit in such circumstances is unsustainable.

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Issues: Whether Modvat credit on inputs used in the manufacture of finished goods destroyed in fire is admissible when remission of duty on the finished goods has been granted.

Analysis: The finished goods were admittedly manufactured with duty-paid inputs and were destroyed in a fire accident. Duty on the destroyed goods had been remitted. The issue was treated as settled by earlier Tribunal decisions, which held that remission of duty under the relevant excise framework does not amount to a general exemption or nil-rate clearance so as to deny credit on inputs merely because the final products were destroyed. The Board's circular also clarified that credit on inputs contained in finished products on which duty remission has been granted remains admissible and no reversal is required.

Conclusion: Modvat credit was admissible notwithstanding remission of duty on the destroyed finished goods, and the denial of credit was unsustainable.

Ratio Decidendi: Remission of duty on finished goods destroyed after manufacture does not convert those goods into exempted goods so as to attract denial of input credit.

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