Whether credit reversal on inputs available in stock and that issued for manufacture required when inputs destroyed in fire?

PJ/Case Law/2014-15/2178

Case:- M/s RAKO MERCANTILE TRADERS Vs COMMISSIONER OF CENTRAL EXCISE, LUCKNOW

Citation:- 2014-TIOL-824-CESTAT-DEL

Brief Facts:- The appellants were 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 20.3.09. 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.
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. 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.

Appellant’s Contention:- Appellant contends that the issue whetherCenvat credit on inputs issued for manufacture needs to be reversed was examined by the Tribunal in the case of Sabero Organics Gujarat Ltd. Vs . CCE. Vapi reported in 2009 (236) ELT 281 (Tri.- Ahmd ) = 2009-TIOL-475-CESTAT- AHM and it was held that there was 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 was not maintainable. The appellants also relied on the decision of Larger Bench of the Tribunal in the case of Grasim Industries Vs. Commissioner reported in [2007 (208) ELT 336 (Tri.LB)] = 2007-TIOL-135-CESTAT-DEL-LB.

Respondent’s Contention:- Learned Jt.CDR appearing for the Revenue submitted that as per the settled law the appellants were 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 relied upon the Tribunal's decision in the case of Panacea Biotech Ltd. reported as [2013 (297) ELT 587 (Tri-Del)]. As regards the credit involved in respect of inputs issued for the manufacture and as contained in 'goods in progress', 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.

Reasoning of Judgment:- After appreciating the submissions made by both sides, the Hon’ble judges found that there was no dispute about the fire accident in the appellants factory. The Revenue explanation that fire had occurred on account of negligence on the part of assessee could not be appreciated in as much 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 was required to be asked for. As regards the inputs lying in store, the Tribunal in the case of Panacea Biotech Ltd.had taken into consideration the entire case law and had held that mere receipt of the inputs will not entitle the assessee to avail the credit, when such inputs were destroyed 'as such' in the store section itself.

By applying the ratio of the above decisions, the Hon’ble judges held that the Cenvat credit of duty of Rs. 70,578/- involved 'in-process goods' was not to be reversed, whereas the Cenvat credit of Rs.1,14,003/- as availed in respect of goods lying in stock was required to be reversed. Accordingly a part of the demand was set aside whereas the other part was confirmed. As regards penalty, as it was not a case of malafide intention on the part of the assessee so as to invoke penal action thus the entire penalty was set aside.

Decision:- Appeal disposed off.

Comment:- The analogy drawn from the case was that Cenvat shall be allowed on the inputs being issued to be used in the manufacture of finished goods but it shall be disallowed on the inputs lying in the stock, reason being that such inputs were not used in the process of manufacture.

Prepared by: Madhav Rathi

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PJ/Case Law/2014-15/2178

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