Whether credit of inputs issued for manufacturing and destroyed in fire is required to be reversed?

PJ/CASE LAW/2015-16/2662

Case:-RAKO MERCANTILE TRADERS VERSUS COMMISSIONER OF C. EX., LUCKNOW

Citation:- 2014 (307) E.L.T. 602 (Tri. - Del.)

Brief Facts-The brief facts of the case are that the appellants are manufacturers of excisable goods and they availed facility of Cenvat credit of duty on inputs under the Cenvat Credit Scheme. On 20-3-2009, there was a fire in the factory premises of the appellants and in the process, certain quantity of finished goods, stock in process and raw material got destroyed. The appellants intimated the details of raw material and stock in process which were lying in stock vide their letter dated 20-3-2009. On such goods, the total Central Excise duty amounted to Rs. 70,578/- on inputs in process and Rs. 1,14,003/- on inputs stored as such. A show cause notice was issued and the matter was adjudicated by the Assistant Commissioner of Customs demanding duty of Rs. 1,84,581/-. Further a penalty equal to the said amount was imposed under Rule 15 of Cenvat Credit Rules, 2004. Aggrieved by the order, the appellants filed appeal with the Commissioner (Appeals) who confirmed the order of the Adjudicating Authority. Aggrieved by the order of Commissioner (Appeals), the appellants have filed this appeal before the Tribunal.

Appellants Contention:-The contention of the appellant is that the issue whether Cenvat credit on inputs issued for manufacture needs to be reversed was examined by the Tribunal in the case of Sabero Organics Gujarat Ltd. v. CCE, Vapi reported in 2009 (236)E.L.T.281 (Tri.-Ahmd.) and it was held that there is no need to reverse such credit. They argue that there cannot be any mens rea on the part of the appellants in this situation and therefore, the penalty imposed on them is not maintainable. The appellants also relied on the decision of Larger Bench of the Tribunal in the case of Grasim Industries v. Commissioner reported in [2007 (208)E.L.T.336 (Tri. LB)].

Respondents Contention-Learned Jt. CDR appearing for the Revenue submits that as per the settled law the appellants are not entitled to Cenvat credit of duty paid on the inputs, which have not been issued for the manufacturing process. For the above proposition, he relies upon the Tribunal’s decision in the case of Panacea Biotech Ltd. reported as [2013 (297)E.L.T.587 (Tri.-Del.)]. As regards the credit involved in respect of inputs issued for the manufacture and as contained in ‘goods in process’, he submits that appellant did not take enough precaution to avoid the fire in which case they have to be held responsible for the fire accident and the credit should be directed to be reversed. Revenue was of the view that the appellants should have reversed the Cenvat credit taken on such inputs which were in stock and in process since such goods were not used in the manufacture of dutiable final products as required under Cenvat Credit Rules.

Reasoning Of Judgement-After appreciating the submissions made by both sides, the tribunal find that there is no dispute about the fire accident in the appellants factory. The Revenue explanation that fire has occurred on account of negligence on the part of assessee cannot be appreciated inasmuch as nobody invites fire. As per settled law, the inputs which have already been issued from the inputs store section, to be used in the manufacture of final product, have to be treated as the inputs used in the manufacture and no Cenvat credit reversal is required to be asked for. As regards the inputs lying in store, the Tribunal in the case of Panacea Biotech Ltd. has taken into consideration the entire case law and has held that mere receipt of the inputs will not entitle the assessee to avail the credit, when such inputs are destroyed ‘as such’ in the store section itself. By applying the ratio of the above decisions, the tribunal hold that the Cenvat credit of duty of Rs. 70,578/- involved is ‘in-process goods’ is not to be reversed, whereas the Cenvat credit of Rs. 1,14,003/- as availed in respect of goods lying in stock is required to be reversed. Accordingly a part of the demand is set aside whereas the other part is confirmed. As regards penalty, the tribunal agree with the learned advocate that this is not a case of malafide on the part of the assessee so as to invoke penal action. Accordingly, the entire penalty is set aside. The appeal is disposed of in the above terms.

Decision:- Appeal partly allowed.

Comment:-The analogy of the case is that the credit reversal is not required for the inputs issued for manufacturing process and destroyed in fire as these are to be treated as the inputs used in the manufacture of final product. However, credit reversal is required when the inputs are lying in stock because mere receipt of inputs will not entitle the assessee to take credit. Moreover, as the requirement of proving mens rea on the part of assessee is necessaryfor penalty imposition, penalty was set aside.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2662

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