Final products destroyed in fire – input credit need not be reversed
"When the inputs on which credit has been availed are used for the manufacture of final products and if such final products are destroyed due to fire and such loss of finished goods has been adequately compensated by the Insurance (minus excise duty), is the attributable modvat credit (on such inputs) be reversed, when remission of duty is granted on the finished goods destroyed in fire/accident."
This was the question before the Larger Bench of the CESTAT.
Board had in Circular No. 800/2004 clarified,
It is clarified that the credit of the excise duty paid on inputs used in the manufacture of the finished goods on which the duty has been remitted due to damage or destruction etc. is not permissible and the dues with interest should be recovered.
We had carried an article analyzing the issue in CBEC: THE PHOENIX SANCTUARY!
Now the Larger Bench has decided that the credit need not be reversed after all. Please see the Grasim case we are carrying today.