2006 (5) TMI 356 - AT - Central Excise

Summary

Issues:
Claim for remission of duty under rule 21 of the Central Excise Rules, 2002 for destroyed inputs and intermediate products. Denial of Cenvat credit availed on inputs and intermediate products. Interpretation of rule 4(5)(a) of Cenvat Credit Rules, 2002. Precedence of Tribunal decisions over Supreme Court decisions.

Analysis:
The appellant, engaged in manufacturing Bulk Drugs and Organic chemicals, sent inputs for job work to their unit No. II, availing Cenvat credit under rule 4(5)(a) of Cenvat Credit Rules, 2002. Due to a fire accident destroying semi-finished goods and inputs, the appellant filed a claim for remission of duty under rule 21 of the Central Excise Rules, 2002. However, a show cause notice was issued demanding Cenvat credit amounting to Rs. 3,92,913/- on inputs and intermediate products, along with duty on intermediate products amounting to Rs. 11,78,346/-. The Commissioner allowed remission of duty but demanded Cenvat credit, leading to the appeal.

The appellant contended that once inputs are issued for manufacturing, credit cannot be denied, citing Tribunal decisions in similar cases. They argued that since inputs were sent for job work, they should be considered as issued for manufacture, and hence, Modvat credit cannot be denied. The appellant also mentioned Supreme Court judgments upholding decisions where Modvat credit was not denied on inputs destroyed in fire accidents.

Upon review, the Tribunal considered conflicting decisions. While a Division Bench decision held that remission granted by competent authority disallows credit on inputs, the Tribunal found that the Supreme Court's decision in a similar case confirmed that Modvat credit cannot be denied on inputs sent for job work and destroyed in a fire accident. Therefore, the Tribunal ruled in favor of the appellant, setting aside the Commissioner's order and allowing the appeal based on the precedence of the Supreme Court decision.

In conclusion, the Tribunal's judgment clarified the application of Cenvat credit rules in cases of destroyed inputs and intermediate products sent for job work, emphasizing the precedence of Supreme Court decisions over Division Bench decisions in similar matters.