1991 (11) TMI 145 - Commissioner - Central Excise

Summary

Issues:
- Appeal against reversal of Modvat credit on inputs destroyed in fire accident
- Interpretation of Central Excise Rules regarding eligibility for Modvat credit on damaged inputs
- Application of Circular No. 66/88-CX and Trade Notices in determining credit reversal

Analysis:
The appeal in this case involves a challenge against the reversal of Modvat credit by M/s. Larsen & Toubro Ltd. due to a fire accident that damaged inputs used in the manufacturing process. The dispute revolves around whether the appellant is eligible to retain the Modvat credit on the inputs destroyed or if they should reverse the credit as demanded by the Assistant Collector of Central Excise.

The appellant argued that as per Circular No. 66/88-CX, they are not required to reverse the credit on inputs that were in the process of manufacture when damaged in the fire accident. They contended that the inputs, once issued for manufacturing, should be considered as used in the final products. Additionally, they relied on various legal decisions and Trade Notices to support their case.

Upon considering the submissions, the key point for determination was whether the appellant can avail Modvat credit on inputs destroyed during the manufacturing process. The Assistant Collector had ordered the reversal of the credit, stating that the inputs did not go into the finished products that incurred duty. However, the appellant argued that the rules do not provide for recovery in such circumstances.

The judgment analyzed the relevant provisions of the Central Excise Rules, particularly Rule 57F, which allows credit on inputs intended for use in final products. It was noted that the intention to use the inputs suffices for claiming Modvat credit. The judgment emphasized that there was no provision for recovery of credit in the situation where inputs were damaged during the manufacturing process.

Furthermore, the judgment considered Trade Notices issued by Central Excise authorities, highlighting that credit reversal should apply only to inputs not used in final products. Consequently, the judgment ruled in favor of the appellant, allowing them to retain the Modvat credit on inputs that were issued for manufacturing and damaged in the fire accident. The Assistant Collector was directed to determine the specific amount of credit to be reversed only on inputs not yet issued for manufacture.

In conclusion, the judgment clarified the eligibility criteria for retaining Modvat credit on damaged inputs, emphasizing the importance of intention and actual usage in the manufacturing process. It also underscored the significance of Trade Notices in interpreting and applying Central Excise Rules in such cases.