Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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