Whether the CENVAT credit taken on goods should be reversed even if the remission of duty is not allowed for finished goods lost in fire .

PJ/Case Law /2016-17/3285

Case:-RINI LIFE SCIENCE PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:- 2016 (339) E.L.T. 598 (Tri. - Del.)

Brief Facts:-The appeal is against order dated 8-2-2016 of Commissioner (Appeals), Bhopal. The appellants are engaged in the manufacture of bulk drugs liable to Central Excise duty. They were availing credit on various inputs in terms of Cenvat Credit Rules, 2004. On 12th October, 2007 there was a fire accident in their factory resulting in loss of certain inputs as well as goods in process. They have intimated the Department on 15-10-2007 itself followed by a detailed request on 1-1-2008 seeking remission of duty of Rs. 8,50,064/-. Till date no formal order has been issued on the said remission application. In 2010, consequent upon an audit of their record and as pointed out by the audit officers the appellant reversed an amount of Rs. 5,60,267/- towards Cenvat credit availed on inputs and inputs contained in final products lost due to fire in October, 2007. Later on 13-7-2012 a show cause notice was issued to the appellant to demand/recover and appropriate the said amount and to impose penalty. The Original Authority confirmed the demand and imposed equal amount of penalty on the appellant. On appeal, the Commissioner (Appeals) vide the impugned order upheld the original order. Aggrieved, the appellant is in appeal.

Appellant’s Contentions:-The learned Counsel for the appellant submitted that though they reversed the full credit immediately on being pointed out by the audit, they are contesting the correctness of denial of credit of Rs. 1,05,726/- which are attributable to the credit on inputs which are already used in the manufacture of final products and such final products are lost in fire. The learned Counsel submitted that no recovery of such credit on inputs is sustainable in the present case as Rule 3(5C) of Cenvat Credit Rules, 2004 talks about reversal of credit only on remission of duty on the manufactured goods under Rule 21 of Central Excise Rules, 2002. Since the remission has not been decided no reversal of credit is tenable. Even otherwise, he submitted that the credit cannot be denied as the duty paid inputs have been used for the specified purposes and there is no diversion or irregularity w.r.t. such raw material usage. Further, the learned Counsel strongly contested the imposition of equal amount of penalty on the appellant by the lower Authorities. He submitted that there is absolutely no case for imposition of penalty as the fire accident has been intimated within two days to the Department followed up by detailed request for remission of duty on raw material as well as finished goods. In such situation there is no ground for penal action. Further, it is a fact that both the lower Authorities have not specified the grounds under which such penal action can be taken.

Respondent’s Contentions:-.The learned AR reiterated the findings of the lowerAuthorities.
Reasoning Of Judgement-Heard both the sides and examined appeal records. The appellant are contesting the reversal of credit ordered by the lower Authorities attributable to inputs contained in finished goods lost in fire accident. The admitted facts are that the inputs have been used for the intended purposes and there has been no allegation of diversion or improper accounting of such inputs. As such, the availment of credit on them cannot be questioned. However, when the final product is lost in fire accident subsequently the question of reversal can be decided only in terms of Rule 3(5C) of Cenvat Credit Rules, 2004. Since, in the present case there is no order of remission and as such I find that reversal of credit on such inputs contained in final product is pre-mature and unjustified. The appellants are not contesting the reversal of credit on the inputs lost in fire accident.
Regarding the penalty imposed on the appellant, I find that there is no finding by the lower Authorities justifying the imposition of equal amount of penalty under Rule 15(2) of Cenvat Credit Rules, 2004. Admittedly the credit has been rightly taken by the assessee and there is no illegality in that. The intervening fire accident resulted in possible loss of credit for the appellant which in any case cannot be penalized by invoking Rule 15(2) without any reason attributed. Further, the notice issued on 13-7-2012 w.r.t. fire accident in October, 2007 is clearly beyond the normal period. When the due intimation was given by the appellants on 15-10-2007 and 1-1-2008 and the credits also has been reversed on being pointed out by audit, I find no justification for invoking fraud, willful misstatement, suppression with intend to evade payment of duty etc. against the appellant to justify invoking longer period of limitation. Under these circumstances penalty imposed on the appellant is set aside.

Decision:-The cenvat credit is to be reversed when the remission is allowed. When the remission is not allowed by the department then reversal of Cenvat credit is not at all warranted under Rule 3(5c) of Cenvat credit Rules. Further, there was no contravention of Rules, hence equal penalty cannot be invoked against the appellant.
Comment:- No reversal of Cenvat credit on inputs is warranted unless and until the remission of duty is allowed. Equal penalty can be imposed when there is wilful suppression with an intent to evade payment of duty.

Prepared By- Tushar Gupta

Comments

PJ/Case Law /2016-17/3285

Post a Comment

Query