2007 (4) TMI 72 - AT - Central Excise

Reversal of credit - Department contended that appellant is required to reversal of cenvat credit taken on inputs used in the manufacture of P or P medicines proposed to be destroyed - Held that department contention is not correct and it is set aside

Summary

Issues:
Challenge to imposition of condition of reversal of Cenvat credit on inputs used in manufacturing expired medicines proposed for destruction.

Analysis:
The appellant contested the order of the Commissioner dated 20-12-06, objecting to the condition of reversing Cenvat credit on inputs for manufacturing expired medicines intended for destruction. The appellant claimed a stock of expired medicines unfit for consumption and marketing, seeking remission of Central Excise duty. The Commissioner allowed remission of duty subject to supervision of destruction due to expiry dates being crossed.

The appellant argued against the condition of reversing Cenvat credit, citing the decision of the Larger Bench in Grasim Industries v. CCE, Indore. The appellant's representative contended that this condition contradicted the Larger Bench's ruling, emphasizing that remission rules did not specify credit reversal for destroyed goods. In contrast, the department's representative supported the Commissioner's decision, referring to a Board Circular from 1-10-04. This Circular, based on the Mafatlal Industries Ltd. case, prohibited credit on inputs for goods with remitted duty due to damage or destruction.

However, the Tribunal noted that the Grasim Industries case overruled the Mafatlal Industries decision, emphasizing that remission rules did not mandate reversing credit on inputs for destroyed goods. The Tribunal endorsed the view from Inalsa Ltd. v. CCE, New Delhi, stating that in cases of duty remission for goods destroyed in incidents like fire, reversing modvat credit on inputs was unnecessary. Consequently, the Tribunal deemed the Board Circular ineffective, as it contradicted the Grasim Industries ruling.

Therefore, the Tribunal concluded that the condition of reversing Cenvat credit on inputs for manufacturing expired medicines to be destroyed was unjustifiable. Consequently, the impugned order was modified, and the appeal was allowed.