Modvat credit allowed for invisible in-factory handling losses where inputs were fully received and losses were incidental

Modvat credit is not to be denied where inputs are received in full and the alleged shortages arise only from invisible in-factory losses such as spillage, drift, evaporation, leakage or other handling losses during storage, movement or processing. Such losses are treated as incidental and largely unavoidable in the manufacturing process, and therefore fall within the protective scope of Rule 57D. On that basis, the Tribunal held that credit could not be disallowed merely because of these internal material handling and storage losses.

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Issues: Whether Modvat credit could be denied or reduced on account of invisible storage and material handling losses of inputs occurring within the factory after full receipt of the inputs.

Analysis: The inputs were admittedly received in full and the dispute arose only from losses identified as spillage, drift, evaporation, leakage and other handling losses within the manufacturing process. Such losses were treated as invisible and largely unavoidable in the course of internal movement and processing of materials. On that footing, the Tribunal held that the case did not justify denial of Modvat credit and that the losses fell within the protective scope of Rule 57D.

Conclusion: Modvat credit could not be disallowed on account of the invisible material handling and storage losses, and the issue was decided in favour of the assessee.

Ratio Decidendi: Modvat credit cannot be denied where the inputs are received in full and the alleged shortages are only invisible in-factory losses arising from handling, storage or processing.

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