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Admissibility of MODVAT/ CENVAT Credit on Inputs used in the Manufacture
of Finished Goods on which Duty has been Remitted
Central
Excise Circular No. 650 dated 7th August 2002
I
am directed to refer to the subject cited above and to say that a doubt has
arisen whether Modvat/ Cenvat credit is admissible on inputs used in the
manufacture of goods on which duty has been remitted.
2. In this regard Board�s attention has been
drawn to a decision of CEGAT in the case of M/s. KIRLOSKAR ELECTRIC Co. Vs. CCE,
Bangalore. In this case, CEGAT has held that the assessee is entitled to Modvat
credit on the inputs used in the finished products which were destroyed due to
circumstances beyond their control and on which duty remission has been granted
by the Department. While delivering this judgement, CEGAT has relied upon its
judgement in the case of INALSA Ltd. v/s. CCE, New Delhi {1997(90) ELT 417} in
which CEGAT has held that reversal of proportionate credit on inputs used in
manufacture of finished goods cannot be demanded under erstwhile rule 57C of
Central Excise Rules, 1944 as remission of duty cannot be equated to exemption
from duty and hence, the modvat credit on such inputs is admissible.
3. Board has examined the mater in the context
of the said CEGAT judgements and the instructions contained in para 2.4 of
Chapter 18 of Central Excise Manual. It is clarified that Modvat/ Cenvat credit
of duty paid on the inputs contained in finished products on which duty
remission has been granted shall be admissible and reversal thereof shall not be
necessary. However, before granting remission of duty on any finished products
destroyed or damaged in fire, accident etc., it should be ensured that the
insurance amount claimed by the assessee does not include the duty element of
the inputs used in the manufacture of said goods taken as credit. The
instruction contained under para 2.4 of Chapter 18 of Central Excise Manual
shall be modified to this extent.
4.
Trade and field formation may be informed suitably.
5.
Receipt of the same may be acknowledged.
6.
Hindi version will follow.
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