Whether proportionate credit required to be reversed on capital goods destroyed in fire?

PJ/CASE LAW/2015-16/2834

Case:- STEELBIRD HI TECH INDIA LTD V/S COMMISIONER OF C.EX., DELHI-11

Citation:-2015(322) E.L.T. 752 (Tri.- Del)

Brief Facts:-On 24-11-2002, a fire broke out in the factory of the appealant and certain inputs, semi finished goods and capital goods were destroyed. These facts are not in dispute. The appealant filed the remission claim of duty on the goods lost in fire. The adjudicating officer rejected their remission. Consequently, a show cause notice was issued to demand duty on finished goods, unfinished goods and capital goods. The showcause notice was adjudicated. Demand of duty was confirmed along with interest. Aggrieved from the said orders appellant is before Tribunal.

Appellant contentions:- The ld. Counsel for the appellant submits that while denying claim under rule 21 of the Central Excise Rules, 2002 the ld. Commissioner(A) relied on the decision of this tribunal in the case of Mafatlal Industries v. C.C.E. Ahmedabad -2003 (154) E.L.T.543 (Tri.-Bom) on the finished goods. But the set decision was reversed by the larger bench o this tribunal in the case of Grasim Industries v. C.C.E. Indore-2007 (208) E.L.T.336 (Tri.-LB). Therefore, they are entitled for remission of duty on finished goods. Consequently, they are not required to pay duty on finished goods lost in fire and also not required to reverse the Cenvat credit on inputs contained in the finished goods.

For denial of remission of duty on semi finished goods/unfinished goods, the Ld. Commissioner (A) relied on the decision of this Tribunal in the case of Deepak Tandon v. C.C.E. Bhubaneswar-2000 (126)E.L.T.1079 (CESTAT),to say that claim of remission is not maintainable as goods are not marketable. He further submits that as per the decision in the case of Grasim Industries(Supra) the appellant cannot be directed to reverse the Cenvat credit on inputs contained in semi-finished goods or unfinished goods. He further submits that on capital goods the appellant has taken the credit correctly and same has been put in use. Therefore, Cenvat credit cannot be denied. He further submits that as they have reversed Cenvat credit on inputs destroyed in fire, therefore, appellant is not contesting the issue.

Respondent contentions:-The ld. AR supported the impugned order to say that on semi-finished goods and unfinished goods denial of remission of duty is correct ,relying on the decision in the case of Deepak Tandon (supra). Consequently, appealant is require to reverse the Cenvat credit contained in the unfinished/semi-finished goods. He further submits that on capital goods, the capital goods have been destroyed before their estimated life. In that case proportionate credit is required to be denied. He also submits that appealant got claim from the insurance company. Therefore, the proportionate Cenvat credit is to be considered for denial of the Cenvat credit.

Reasoning of Judgment:-In this case the following issues are required to be decided:

(a) Whether the appellant is entitled to claim remission of duty on finished goods destroyed in fire or consequently required to pay duty on the value of finished goods or required to reverse the Cenvat credit on inputs contained in the finished goods?

(b) Whether the appellant is entitled to claim remission of duty on semi-finished goods/unfinished goods lost in fire. Consequently, appellant is required to reverse the Cenvat credit contained in semi-finished goods and unfinished goods? and

(c) Whether the appellant is entitled to claim remission of duty on capital goods or not and consequently the appellant is required to reverse proportionate Cenvat credit on capital goods or not?

To decide the first issue they find that same has come before the Larger Bench of this Tribunal in the case of Grasim Industries(Supra) wherein this Tribunal has observed as under :

‘‘Reading of rules under which remission is granted in respect of goods which were lost or destroyed by natural cause or by natural accident, does not provide any condition regarding reversal of credit taken in respect of inputs used on such goods, hence we are unable to support the view taken in the case of Mafatlal Industries whereby it has been held that assessee has to reverse the credit taken of inputs used in such goods on which remission is granted.’’

Therefore, they hold that on finished goods destroyed in fire the appellant is entitled to claim remission of duty. Consequently, appellant is not required to pay duty.

For claim of remission of duty on unfinished/semi-finished goods destroyed in fire they do agree with the contention of the Ld. Commissioner (A) relying on the decision of Deepak Tandon(supra) that these goods are not marketable. Therefore, remission of duty cannot be claimed. But at the same time relying on the decision of Grasim Industries (Supra); when the input have gone in manufacturing process, therefore they are not required to reverse Cenvat credit on input contained in unfinished goods/semi-finished goods lost in fire as there is no provision of reversal of Cenvat credit in respect of inputs used in manufacturing of such goods. On capital goods they find that appellant has taken Cenvat credit correctly and there is also no provision in the Cenvat credit Rules to reverse proportionately Cenvat credit on capital goods which was lost in fire or were not used. Therefore, they hold that the appellant is not required to reverse Cenvat credit on capital goods. In nutshell the appellant is not required to pay duty on finished goods and not required to reverse the Cenvat credit on inputs contained in unfinished goods and semi-finished goods and not required to reverse the Cenvat credit of capital goods. With these regards appeal is allowed.

Decision:- Appeal allowed.

Comment:-The essence of the case is that the appellant is not required to reverse the Cenvat credit on inputs contained in unfinished /semi finished goods as these inputs have been used by them in the manufacturing process. Also, there is no need to reverse proportionate credit on capital goods lost in fire because there is no provision in this regard in the statue.

Prepared by: Shraddha Singhvi

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PJ/CASE LAW/2015-16/2834

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