Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Dept. Can’t Classify Product as Zarda Scented Tobacco After Repeatedly Approving It As Chewing Tobacco: CESTAT *  Mere Uploading Of GST Order On Portal Is Not “Valid” Service: Tripura HC *  CGST Can Proceed Even If SGST Closed Similar Case Earlier: Delhi HC *  SC upholds 28% GST on online gaming with retrospective effect. *  West Bengal Govt cuts E-way Bill Threshold limit to Rs. 50,000 for intra-state goods movement. *  Criminal Prosecution Under Central Excise Act Can’t Continue After CESTAT Sets Aside Duty Demand on Merits: Punjab & Haryana High Court. *  Madras High Court Quashes GST Assessment Orders for Denial of Personal Hearing; Remands Matter Subject to 10% Deposit *  Ex Parte GST Order: Madras High Court Directs Immediate Removal of Bank/ITC Attachment Upon 25% Deposit *  J.K. Cement Receives GST Demand Order of Rs 8,02,113/- from Ahmedabad Tax Authority *  Delhi Police EOW Busts Alleged Rs. 128 Crore GST Fake Invoice Network. *  REPLY TO SCN CAN’T BE TREATED AS “EMPTY FORMALITY”: ORISSA HIGH COURT QUASHES GST DEMAND OF RS. 57.30 LAKH *  Challenge to CGST Provisions restricting ITC to Bonafide Purchasers : Allahabad HC issues notice *  CBIC Notifies Revised Customs Tariff Values for Edible Oils, Gold, Silver, Brass Scrap and Areca Nuts *  Delhi HC Orders Removal of GST Attachment After Statutory 1 Year Period Expired *  GSTAT Extends Relaxed Appeal Filing Guidelines till December 31, 2026 *  AO fails to Provide Import - Export Data from DGFT to Taxpayer for Reconciliation *  Gold, Silver Imports To Get Costlier As Govt Raises Customs Duty To 10%  *  GSTAT Enables Pre-Payment Access to Document Upload and Checklist for GST Appeal Filing *  GST Portal Restrictions Can’t Override Statute: Gujarat HC Allows Cross-State Transfer Of CGST ITC After Amalgamation *  Centre Revises HS Codes for Large Diameter Steel Pipes Used in Oil & Gas Pipelines *  Customs Duty Liability Arises On Warehouse Clearance Date: Supreme Court *  Government lifts export ban on de-oiled rice bran *  CESTAT Grants 12% Interest on Pre-Deposit for Investigation from Date of Deposit till Refund and Denies Interest on Interest. *  Government Overhauls GST Classification Framework for Non-Alcoholic Beverages; Fruit Juice Drinks, Milk-Based Beverages and Caffeinated Drinks to Attract Revised 5% and 40% GST Rates from May 1, 2026 *  India’s gross GST collections hit a record Rs 2.42 lakh crore in April, up 8.7% *  Customs clearance stalled, revenue hit over MRP dispute *  Shipping Corporation explores Middle East routes as Hormuz tensions disrupt cargo movement *  India, Kenya signs MoU for exchange of pre-arrival customs information *  No demand of Taxes under Reverse Charge if Tax Already Discharged by Service Provider under forward charge *  The India-New Zealand Free Trade Agreement, signed "once-in-a-generation" deal that eliminates tariffs on 100% of Indian exports to New Zealand
Subject News *  Consignment Sales Can’t Be Reclassified as Inter-State Sales Based on Pre-Agreement Evidence: CESTAT *  Exporter Can’t Be Denied Advance Authorization Benefit Due To ICEGATE Technical Glitch: Delhi High Court *  No GST Demand For Mere Wrong Set-Off Of IGST Credit Under CGST And SGST Heads: Kerala HC. *  Cenvat Credit Can’t Be Denied on Input Services Having Nexus With Manufacturing Activities: CESTAT *  Pending Proceedings Can’t Survive Without Saving Clause: Calcutta High Court Quashes GST Demand of Rs. 6.28 Crore After Omission of Rule 96(10) *  Madras HC Quashes GST Demands on TASMAC (Tamil Nadu State Marketing Corporation) Bar Licence Fee *  GST Proceedings Cannot Survive Omitted Rule Without Saving Clause: Calcutta HC *  Provisional Release Can’t Be Denied Solely On Dept. Suspicion Of Misclassification And Undervaluation Of Imported Goods: CESTAT *  Businesses Should Not Be Kept Outside GST Regime Without Due Process: Gauhati High Court *  Punjab & Haryana HC Directs Reconsideration of Contractors’ Claim for Additional GST Payment After Tax Rate Hike From 12% to 18% *  S. 108 Statements Can’t Be Sole Basis Without Following Section 138B Procedure: CESTAT *  Bombay High Court Frames Key Questions on Mandatory Distribution of ITC U/s 20 CGST Act *  Filing of Annexure-B for Refund Applications involving Accumulated ITC using the offline utility in GST portal: GSTN *  No Service Tax on Parent Company’s Un-Invoiced Cost Allocations Without Actual Service or Consideration: CESTAT  *  Calcutta High Court Upholds GST Classification of Polypropylene Leno Bags as Plastic Products *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  GSTAT Issues Major Bench Allocation Framework; All Appeals to First Go Before Division Bench *  ITC Blocking Without Reasoned Order Violates Rule 86A; Punjab & Haryana HC Directs Release of Credit *  Allahabad HC Refuses Bail to CGST Superintendent In Rs. 70 Lakh Bribery Case *  S.130 Can’t Be Invoked Without Prior Tax Determination U/s 73/74: Allahabad High Court Quashes GST Confiscation Proceedings *  SC grants Bail to Rs 54cr GST case  *  Karnataka HC Sets Aside Duplicate GST Orders, Orders Fresh Hearing on GSTIN Cancellation *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  Transfer Of Unutilized ITC After Amalgamation - Supreme Court Issues Notice *  PUNJAB & HARYANA HC QUASHES GST CANCELLATION NOTICE FOR FAILURE TO PROVIDE CBIC ENQUIRY REPORT *  LICENSE FEE, TECHNICAL ASSISTANCE CHARGES NOT INCLUDIBLE IN CUSTOMS VALUE UNLESS THEY ARE A CONDITION OF SALE: CESTAT *  DELHI HC ORDERS REMOVAL OF GST ATTACHMENT AFTER STATUTORY 1 YEAR PERIOD EXPIRED *  CUSTOMS BROKER CAN’T BE FAULTED JUST BECAUSE EXPORTER’S GST REGISTRATION WAS PREVIOUSLY CANCELLED: CESTAT   *  Supreme Court Dismisses Review Plea Against Delhi HC Ruling Holding Real Operator Behind Fake GST Firms Liable As ‘Taxable Person  *  GST Appeal Can’t Be Rejected Merely Because DRC-07 Was Not Uploaded On Portal: Bombay High Court  

Comments

Print   |    |  Comment

PJ/Case law/2014-15/2275

Whether reversal required on credit availed on inputs which were destroyed in flood?

Case:-PANACEA BIOTEC LTD. Versus COMMISSIONER OF C. EX., CHANDIGARH-II
 
Citation:-2013 (297) E.L.T. 587 (Tri. - Del.)
 

Brief facts:- Appellant is engaged in the manufacture of P or P medicines. On account of severe flood on 3-8-2004, the appellant’s final product, packing material as also the raw material lying in their factory at Lalru (Punjab) were damaged and rendered unfit for consumption.

The appellant applied for remission of duty involved on finished goods as also in respect of inputs lying in their factory. As the appellant had availed Cenvat credit on the inputs and the packing material, remission application was basically for non-reversal of the credit. The Commissioner vide his impugned order passed in de novo proceedings held that provisions of Rule 21 of Central Excise Rules, 2002 do not apply to inputs/raw material/packing material and as such rejected the appellant’s request for remission of duty of Rs. 8,13,282/-. The said order of Commissioner is appealed before Tribunal.
 
Appellant’s contentions:- Ld. Advocate, Shri T.R. Rustogi appearing for the appellant have submitted that the Commissioner has mis-directed the issue inasmuch as it was not a case of remission of duty in respect of inputs but was the issue of reversal of Cenvat credit. As such the impugned order of Commissioner passed in terms of provisions of Rule 21 of Central Excise Rules, 2002 was neither proper nor just.

As regards merits of the case, he submits that the damage took place on 3-8-2004 on account of flood. The credit having been availed by the appellant in accordance with law was not required to be reversed. He further submitted that during the relevant period, there was no provision for reversal of lawfully availed credit inasmuch as new sub-rule 5(b) in Rule 3 of Cenvat Credit Rules, 2004 was introduced vide Notification No. 26/07/Delhi, dated 11-5-2007. In terms of new amended Rules, Cenvat credit availed in respect of inputs or capital goods, was required to be reversed if such inputs were fully written off from the books of accounts. The advocate draws my attention to the decision of the Hon’ble Bombay High Court in the case of Hindalco Industries Ltd. reported as 2011 (272)E.L.T.161 (Bom.)wherein by taking note of the amendment carried w.e.f. 11-5-2007, Hon’ble High Court has observed that in case of inputs being written off, credit availed on the said inputs is not required to be reversed for the period prior to 11-5-2007.

Ld. Advocate also relied upon Tribunal’s decision in the case of Sami Labs Ltd. reported as 2007 (216)E.L.T.59 (Tri.)and Tribunal’s decision in the case of Aditya Industries reported as 2009 (247)E.L.T.567 (Tri.) wherein remission of duty in respect of raw material was allowed. Accordingly ld. Advocate submits that impugned order be set aside.
 
Respondent’s contentions:-  Countering the argument, ld. DR appearing for the Revenue submits that Commissioner has rightly rejected the applicant’s prayer for remission of duty which they have themselves applied for. Admittedly Rule 21 does not relate to remission of Cenvat credit paid on the inputs which get destroyed before their utilisation. As such he prays for rejecting the appeal.

Reasoning of judgment:- The Hon’ble court find that there is no dispute about the fact of destruction of raw material/packing material during flood on 3-8-2004. The Commissioner has already granted remission in respect of the final product destroyed in the said flood. The only dispute which survives is as to whether the appellant is required to reverse the Cenvat credit availed on the inputs which were also destroyed in the said flood. Irrespective of the fact whether Commissioner has addressed the said dispute as remission of duty or whether the issue is of reversal of Cenvat credit, they proceed to decide the remission application on merits.
It is not the appellant’s case that the said inputs were issued from the store and were lying in the factory as ‘work in progress’ when the same were destroyed. They were admittedly inputs/packing material, lying ‘as such’ in the factory. The Cenvat credit on inputs/packing material is admissible once the same are used or issued for use in the final product. As such the question to be addressed is as to whether the inputs which might have been received a day prior to actual date of damage, would earn Cenvat credit or not?

They find that the issue was considered by the Tribunal in the case of Golden Polymex (India) Ltd. reported as 2003 (160)E.L.T.545 (Tri.). It was observed as under :-

 “7.As regards the reversal of credit in respect of the inputs which were lying in the appellants’ factory unutilised and got destroyed in the fire, it is seen that the said inputs were admittedly neither used in the manufacture of the final product, nor even issued for the manufacture. They were lying as such in the appellants’ premises. The Modvat credit on the inputs is available only when the inputs are used in or in relation to the manufacture of the final product. In the present case they cannot even be said to have been used in relation to the manufacture of the final product, or can be said to have been destroyed during the manufacture of the final product, inasmuch as the same were admittedly not even issued for the manufacture. The appellants’ reliance upon the Larger Bench decision in the case of Ashoke Iron is not appropriate inasmuch as the decision was given in the different set of facts and circumstances. The inputs were received by the appellants in that case, and were admittedly used in the manufacture of the final product, though no duty was paid on the final product. As such the facts and circumstances of that decision are distinguishable from the facts of the instant case inasmuch as in the present matter after receiving the inputs the same were destroyed by fire.”

The said decision was subsequently followed by the Tribunal in the case of Biopac India Corpn. Ltd. reported as 2008 (224)E.L.T.548 (Tri.). By relying upon the earlier decision of the Tribunal in the case of Paras Foam Industries reported as 2007 (209)E.L.T.241 (Tri.) and Golden Polymex (India) Ltd. reported as 2003 (160)E.L.T.545 (Tri.), it was held that the inputs which have not been admittedly issued for use in the manufacture of the final product and get destroyed, when they were lying ‘as such”, the Cenvat credit already availed on the same is required to be reversed.

As such, the tribunal found that the issue stands decided against the assessee in terms of the Tribunal’s decision referred (supra), so they proceed to consider the applicability of the decision relied upon by the ld. Advocate.

In the case of Hindalco Industries Ltd. reported as 2011 (272)E.L.T.161 (Bom.), it is seen that the issue was in respect of inputs/raw material which were written off as also in respect of spares and components which have been written off or destroyed. There is also nothing in the said decision to show as to whether inputs were actually issued for further manufacture of the final product and got destroyed after issuance of the same. Similarly the ratio of the Tribunal’s decision in the case of Sami Labs Ltd. reported as 2007 (216)E.L.T.59 (Tri.),is not applicable inasmuch as the facts in that case revealed that the raw material had been issued for intended purpose and were ‘work in progress’. Similarly the ratio of Tribunal’s decision in the case of Aditya Industries reported as 2009 (247)E.L.T.567 (Tri.), it was the case of demand of duty in respect of raw material procured duty free against the CT-3 free services. In the case of Sabero Organics Gujarat Ltd. reported as 2009 (236)E.L.T.281 (Tri.), the inputs destroyed in fire were the ones which were sent to the job workers.

From the above discussions, it is clear that the appellant is required to reverse the Cenvat credit in respect of inputs/packing material, which were lying ‘as such’ in the factory and got destroyed in that condition without being issued for further work. As such by following the Tribunal’s decision in the case of Biopac India Corpn. as also in the case of Golden Polymex and Paras Foam Industries referred (supra), they find no merits in the appellant’s contention and reject the appeal accordingly.
 
Decision:-Appeal rejected.

Comment:- The crux of the case is that the appellant is required to reverse the Cenvat credit in respect of inputs/packing material, which were lying ‘as such’ in the factory and got destroyed in that condition without being issued for further work. The reason for the same being that the cenvat credit is admissible only for inputs that have been used or issued for use in the manufacture of final products.

Prepared By:- Monika Tak
 

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com