Circular No. 800/33/2004-CX
1^st October, 2004

F.No. 267/22/2002-CX-8
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Subject: Admissibility of CENVAT Credit on inputs used in the manufacture of the finished goods on which duty has been remitted- Board’s Circular 650/41/2002-CX dated 7^th August, 2002- regarding. 

            I am directed to invite your attention to  Board’s Circular No. 650/41/2002-CX dated 7^th August, 2002 on the above mentioned subject which was issued in the light of the judgment of the Tribunal in cases of M/s Inalsa limited Vs CCE, Delhi and M/s Kirloskar Electric Co. Vs CCE, Bangalore wherein the Tribunal held that the assessee was entitled to Modvat credit on the inputs used in the finished products which were destroyed due to circumstances beyond their control and on which the duty has been remitted by the department.   

2.                  Attention is drawn to the decision of the Tribunal in case of M/s Mafatlal Industries Ltd. Vs CCE, Ahmedabad {2003 (154) ELT 543 (Tribunal-Mumbai)} in which the Tribunal while differing from its earlier decision in Inalsa Case held that the credit of the duty taken on inputs used in finished goods burnt/ damaged in fire is demandable if the remission of duty on such finished goods is allowed. The Tribunal  while coming to said decision has observed,- 

“The manufacturer has already been compensated by the insurers for the value of the finished goods which is inclusive of the value of the inputs. The intention of the Modvat scheme is that the duty paid on inputs can be taken credit for paying duty on the finished goods to give relief against the cascading effect of excise duty. When the duty on the finished goods is being remitted, allowing credit of the duty paid on inputs would confer a totally unintended benefit.  Allowing such credit when the finished goods suffer no duty would amount to allowing a cash refund as it can be utilized for paying duty on other goods. There is no provision in the Central Excise Rules to either allow refund of duty paid on inputs or to grant remission of such input duty when the finished goods made from such inputs get burnt /destroyed in fire. The Modvat scheme cannot be interpreted in a way to allow such a refund /remission of duty on the inputs which is not provided for in the rules.”     

3.         In view of the decision of the Tribunal in the case of Mafatlal Industries, Board has reconsidered the issue of admissibility of  Modvat /Cenvat credit on inputs used in the manufacture of finished goods on which duty has been remitted.  Accordingly, Board’s Circular No.650/41/2002-CX dated 7.8.2002 is hereby withdrawn. 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.  

4.         Trade and field  formations may be informed suitably. 

5.         Receipt of the circular may be acknowledged. 

6.         Hindi version will follow.

Vijay Mohan Jain
Under Secretary to the Govt. of India