Modvat credit on inputs used for semi-finished goods survives loss before final manufacture, as intended use satisfies the scheme.

Modvat credit remained available where inputs were used in the manufacture of semi-finished goods, even though those goods were lost before completion of the final product. Credit under the scheme extends to inputs used in or in relation to manufacture, and is not confined to cases where the final product actually emerges. Once inputs have been put to their intended use and transformed into intermediate goods, loss of those goods for reasons beyond the assessee's control does not by itself require reversal of credit. The departmental challenge therefore failed, and the credit was not denied or reversed.

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Issues: Whether Modvat credit taken on inputs used in the manufacture of semi-finished goods, which were lost before completion of the final product, was liable to be reversed.

Analysis: Credit under the Modvat scheme is available where inputs are used in or in relation to the manufacture of the final product. The expression is not confined to cases where the final product actually emerges. Where inputs have been put to their intended use and have undergone transformation into intermediate or semi-finished goods in the course of manufacture, they are treated as having been used in relation to manufacture. Loss of such goods before completion of the final product, for reasons beyond the assessee's control, does not by itself require reversal of the credit.

Conclusion: The credit was not liable to be denied or reversed and the departmental appeal failed.

Ratio Decidendi: Inputs are regarded as used for Modvat purposes when they are put to intended use in or in relation to manufacture, including at intermediate stages, even if the final product does not emerge.

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