2011 (5) TMI 767 - AT - Central Excise

Demand of Cenvat credit alongwith interest on input contained in semi finished goods as well as in finished goods destroyed in flood - Held that - there is no requirement of reversal of input credit taken, where input gone in manufacturing of final product which are destroyed/ lost in flood/ fire etc., appeal filed by the Revenue is dismissed Grasim Industries(2006 - TMI - 1062 - CESTAT,NEW DELHI)

Summary

Issues involved: Appeal against order confirming demand of CENVAT credit on input in semi-finished and finished goods destroyed in flood.

Analysis:
The appeal was filed by the Revenue challenging the order confirming the demand of CENVAT credit on inputs contained in semi-finished and finished goods destroyed in a flood. The facts of the case revealed that the goods used in the manufacturing of final products and the finished goods were lost in floods. The respondent filed a claim for remission of duty on the lost goods, which was allowed with a direction to reverse the CENVAT credit taken on the inputs. The Commissioner (Appeals) modified the adjudication order by allowing the claim of CENVAT credit on inputs used in manufacturing semi-finished and finished goods. The Revenue contended that as per a Board Circular, credit on excise duty paid on inputs used in manufacturing finished goods on which duty has been remitted due to damage is not permissible. Despite notice, no one appeared on behalf of the respondent during the proceedings.

The issue was whether the reversal of CENVAT credit on inputs contained in finished goods and raw materials in semi-finished goods was justified. The Tribunal referred to a previous decision by the Larger Bench in the case of Grasim Industries, where it was held that there is no requirement to reverse input credit where inputs used in manufacturing final products are destroyed or lost in events like floods or fire. The Tribunal upheld the decision of the lower appellate authority, which followed the Larger Bench decision, stating that there is no need to reverse input credit in such circumstances. The impugned order was modified, deleting certain conditions and allowing the appeal filed by the respondent.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decision of the lower appellate authority and the Larger Bench precedent that input credit need not be reversed when inputs used in manufacturing final products are destroyed or lost due to natural causes like floods. The judgment clarified the applicability of rules regarding CENVAT credit in cases of goods lost in unavoidable accidents, emphasizing that in such situations, reversal of input credit is not required.