2012 (5) TMI 405 - AT - Central Excise

Demand of duty whether CENVAT credit attributable to the inputs contained in the semi-finished and finished goods destroyed in flood was inadmissible and was required to be reversed Held that - Asian Paints (I) Ltd. (2004 - TMI - 53041 - CESTAT WEST ZONAL BENCH MUMBAI) once the inputs are issued to the manufacturing floor from the stores after receipt in the factory further utilisation of the same cannot be normally questioned. They can be lost due to normal process of a technological loss reversals are therefore not called for appeal filed by the Revenue is rejected

Summary

Issues:
1. Whether the CENVAT credit attributable to inputs in semi-finished and finished goods destroyed in a flood is admissible and required to be reversed.

Detailed Analysis:
The appeal before the Appellate Tribunal CESTAT, Mumbai involved a dispute where the Revenue challenged an order allowing the respondent's appeal, which set aside the duty demand confirmation and the requirement to reverse the CENVAT credit related to inputs in goods destroyed in a flood. The respondent's goods were destroyed due to heavy floods, leading to the reversal of CENVAT credit and a request for remission of duty on the destroyed goods. The Revenue contended that the credit on inputs in the destroyed goods was inadmissible and should be reversed. The matter was previously adjourned multiple times at the request of the Departmental Representative (DR). The DR relied on a decision in Mafatlal Industries vs. CCE and a Board Circular, arguing for setting aside the impugned order.

The respondent, on the other hand, argued that the impugned order correctly addressed the issue and cited precedents such as Grasim Industries vs. CCE Indore and Samtel Color Ltd. vs. CCE to support their claim that the credit should not be reversed. The Larger Bench decision in Grasim Industries case held that destruction of goods due to natural causes does not require reversal of credit taken on inputs used in manufacturing the goods. The first appellate authority, in the impugned order, ruled in favor of the respondent, stating that the credit on inputs used in manufacturing the destroyed goods should not be reversed. The authority referenced previous cases to support this decision, emphasizing that once inputs are used in the manufacturing process, their destruction does not necessitate credit reversal.

After hearing both sides, the Tribunal found that the key issue was whether the credit availed on inputs in the destroyed goods needed to be reversed. Following the precedent set by the Larger Bench decision in Grasim Industries case, the Tribunal upheld the impugned order, stating that the respondent was not required to reverse the credit on inputs used in the manufacturing process of the destroyed goods. The Tribunal rejected the Revenue's appeal, concluding that there was no infirmity in the impugned order.