Modvat credit allowed for invisible transit moisture loss where inputs were received in full original packing.

Modvat credit cannot be denied or reduced where inputs are received in full original packing and the only weight loss in transit is due to atmospheric dryage or invisible moisture loss. Credit under the scheme attaches to the duty paid on inputs actually received for use in manufacture, and this is distinguishable from cases where part of the goods is not received at all. The clarification relied on also supported allowing credit where no claim is made against the supplier. The denial of credit on the moisture-loss portion was erroneous, and full credit on the inputs received was allowed.

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Issues: Whether Modvat credit could be denied or reduced on account of loss in weight caused by moisture loss or dryage in transit, when the inputs were received in full original packing.

Analysis: The inputs were found to have been received in the factory in full quantity, and the reduction in weight was attributable only to atmospheric dryage and invisible moisture loss during transit. Under the Modvat scheme, credit is linked to the duty paid on inputs actually received for use in or in relation to the manufacture of the final product. Since there was no loss of fibre itself in transit, the situation was distinguishable from cases where part of the goods is not received at all. The clarification relied upon also supported the view that credit should not be denied for invisible loss where no claim is made against the supplier.

Conclusion: The denial of Modvat credit on the moisture-loss portion was erroneous, and the appellant was entitled to full credit of the duty paid on the inputs received.

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