2015 (7) TMI 1177 - AT - Central Excise

Reversal of cenvat credit - Rule 21 of the Central Excise Rules, 2002 - Remission of duty - Interest - Held that - the Hon ble Allahabad High Court in the case of CCE vs M. Kumar Udyog (P) Ltd. reported in 2014 (7) TMI 832 - ALLAHABAD HIGH COURT has held that accident of fire due to short circuit is an unavoidable accident, for which the assessee is entitled to remission of duty under Rule 21 ibid. In view of the said judgment, the impugned order denying the benefit of remission on this ground is not justified. The Cenvat Statute nowhere provides that in case of fire accident, the cenvat credit attributable to the said goods has to be reversed. Further, sub-rule (5C) of Rule 3 of the Cenvat Rules calls for reversal of cenvat credit, in the eventuality, where the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, which is not the situation in the present case, in as much as, the remission application filed by the appellant has not been considered by the Jurisdictional Central Excise Authorities. Considering the fact that the report submitted by the appellant is not clear, I am of the opinion that the matter should go back to the original authority for consideration of the actual amount settled by the Insurance Company upon verification of the documents submitted/ to be submitted by the appellant - Appeal allowed by way of remand.

Summary

Issues:
1. Whether the appellant is liable to pay Central Excise duty on semi-finished goods and finished goods destroyed in a fire accident?
2. Whether the appellant correctly reversed the cenvat credit and is liable to pay interest for delayed reversal?
3. Whether Rule 21 of the Central Excise Rules, 2002 is applicable in the case of semi-finished goods?
4. Whether the appellant took reasonable steps to prevent the fire accident?
5. Whether the matter should be remanded to the Original Authority for verification of the claim amount settled by the insurance company?

Analysis:
1. The appellant, engaged in manufacturing P.U. Foam Mattresses, faced a fire accident resulting in the destruction of semi-finished and finished goods. The Range Officer advised the appellant to reverse the cenvat credit, which the appellant promptly did. The Department issued a show cause notice seeking recovery of Central Excise duty and interest. The Tribunal found that duty cannot be levied on semi-finished goods as they were not removed from the factory, citing legal precedents. The appellant's reversal of cenvat credit was held to be unnecessary, as no statutory provision mandates it in case of a fire accident.

2. The appellant argued that the fire was due to a short circuit, certified by the Fire Department, and that no provision exists for cenvat credit reversal in such cases. The Tribunal agreed, stating that no interest is payable for the alleged delayed reversal of cenvat credit. The Tribunal also noted that Rule 21 may not apply to semi-finished goods, and the appellant's claim was supported by legal interpretations.

3. The Jurisdictional Commissioner denied the remission application, alleging the appellant did not take reasonable steps to prevent the fire. However, the Tribunal disagreed, citing a High Court judgment that accidents like fire due to short circuits are unavoidable, entitling the appellant to remission under Rule 21. The Tribunal found the denial of remission unjustified.

4. The Tribunal found no justification for confirming the duty demand on semi-finished goods, as duty liability arises upon removal from the factory. The appellant's reversal of cenvat credit was deemed incorrect, as the statute does not require it in case of a fire accident. The matter was supported by legal precedents and Tribunal decisions.

5. The Tribunal noted discrepancies in the appellant's submission regarding the insurance claim settlement for finished and semi-finished goods. It remanded the matter to the Original Authority for verification of the actual settlement amount by the insurance company, ensuring clarity before final decision.

In conclusion, the Tribunal allowed the appeal by remanding the case to the Original Authority for further verification, emphasizing the need for accurate information regarding the insurance claim settlement.