2004 (8) TMI 528 - AT - Central Excise

Summary

Issues: Application for waiver of pre-deposit of duty and penalty on destroyed capital goods due to fire accident. Interpretation of Cenvat Credit Rules, 2002 regarding reversal of credit on capital goods in case of destruction.

The judgment by the Appellate Tribunal CESTAT, Mumbai, involved an application for waiver of pre-deposit of duty and penalty amounting to Rs. 33,39,917 and Rs. 14,00,000 respectively, concerning capital goods destroyed in a fire incident. The dispute arose from the order of the Commissioner of Central Excise & Customs, Vapi, confirming the demand for reversing Cenvat credit on capital goods due to their destruction in a fire accident, as there was no provision at the material time for such an event. The Tribunal noted that under Rule 3(4) of the Cenvat Credit Rules, 2002, manufacturers were required to pay duty on capital goods when removed from the factory, and the applicants had complied with this rule by paying duty on the salvaged goods after the fire. Consequently, the Tribunal found that the applicants had established a prima facie case for a total waiver, leading to the dispensation of the pre-deposit of duty and penalty, with a stay on recovery pending the appeal.

The primary issue addressed in the judgment was the interpretation of Rule 3(4) of the Cenvat Credit Rules, 2002 in the context of the obligation to reverse Cenvat credit on capital goods in case of their destruction due to a fire accident. The Tribunal analyzed the rule, which mandated the payment of duty by manufacturers when capital goods were removed from the factory. The applicants demonstrated compliance with this rule by paying duty on the salvaged capital goods post the fire incident. This interpretation led the Tribunal to conclude that the applicants had prima facie satisfied the requirements for a total waiver of the pre-deposit of duty and penalty.

The judgment also delved into the application for waiver of pre-deposit of duty and penalty concerning the destroyed capital goods. The Tribunal considered the circumstances of the fire accident and the subsequent demand for reversing Cenvat credit on the destroyed goods. By examining the provisions of Rule 3(4) of the Cenvat Credit Rules, 2002, and the actions taken by the applicants in paying duty on the salvaged goods, the Tribunal found merit in the applicants' case for a total waiver of the pre-deposit amount. Consequently, the Tribunal decided to dispense with the pre-deposit of duty and penalty, with a stay on the recovery process pending the appeal, in favor of the applicants.