Modvat credit remains admissible despite fire destruction where duty remission is not equivalent to exemption or nil rate.

Modvat credit on inputs used in manufacture remained admissible where the finished goods were destroyed by fire and duty was remitted under Rule 49 of the Central Excise Rules, 1944. Credit had been validly taken on inputs received and used in manufacture, and it had already been utilised against duty on earlier clearances. Remission of duty on the destroyed goods was not equivalent to a general exemption or to final products being chargeable at nil rate, so Rule 57C did not apply. The denial of credit was therefore not sustainable, and the assessee was entitled to retain the credit.

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Issues: Whether Modvat credit on inputs used in the manufacture of final products remains admissible where the finished goods are destroyed by fire and duty on such goods is remitted.

Analysis: The inputs had already been received, credit had been validly taken, and the credit had been utilised in payment of duty on final products cleared earlier. The destroyed finished goods had suffered no duty only because remission was granted under Rule 49 of the Central Excise Rules, 1944, which is not the same as a general exemption from duty or a case where the final product is chargeable to nil rate of duty. Rule 57C applies only where the final product is exempt from the whole of duty or is chargeable to nil rate of duty. Since the inputs were actually used in manufacture and the remission under Rule 49 could not be equated with such exemption, Rule 57C was not attracted.

Conclusion: Modvat credit remained admissible and the denial of credit was not sustainable; the assessee succeeded.

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