2014 (3) TMI 783 - AT - Central Excise

Duty demand - Destruction of goods by fire - Suppression of facts - Held that - The DG sets stands utilized for the intended purpose in the Karnataka unit for about five years and transferred to their Imlai unit and installed on 3-6-2002 and was being used in the Imlai unit when the fire on 8-11-2003 destroyed substantial parts of the capital goods. The claim of the applicant was that the scrap generated out of whatever destroyed has been cleared on payment of duty and whatever was reparable has been got repaired and received back in terms of Rule 4(5)(a). In the given facts and circumstances of the case, prima facie, it cannot be treated as a case of removal of capital goods as such and the amount received by the applicants from the insurance company cannot be treated as if sale proceeds of capital goods cleared as such and therefore, payment of duty or reversal of credit on the capital goods so destroyed, may not arise - Stay granted.

Summary

Issues:
1. Recovery of Cenvat credit on destroyed capital goods.
2. Interpretation of Rule 4(5)(a) of the Cenvat Credit Rules.
3. Justification of demand for duty on destroyed capital goods.
4. Applicability of case law in similar situations.

Analysis:
1. The case involved a dispute regarding the recovery of Cenvat credit on capital goods destroyed in a fire accident. The appellants had purchased DG Sets, used them in Karnataka, and later shifted them to Madhya Pradesh, where a fire incident occurred, resulting in substantial damage to the capital goods. The insurance company compensated the appellants, but the authorities issued a show cause notice for recovery of Cenvat credit on the destroyed goods, alleging irregularity and suppression of facts. The Commissioner ordered recovery of credit along with interest and imposed a penalty.

2. The appellant argued that the destruction of the capital goods in the fire did not amount to their removal, as most parts were irreparably damaged and cleared as scrap, while repairable parts were sent for repair in accordance with Rule 4(5)(a) of the Cenvat Credit Rules. Citing a Tribunal decision and a High Court judgment, the appellant contended that the demand for duty was unjustified based on the circumstances of the case.

3. After considering the submissions from both sides and examining the records, the Tribunal observed that the capital goods were used in the Imlai unit when the fire incident occurred, destroying significant parts of the goods. The Tribunal found that the scrap generated from the destroyed goods was cleared with duty payment, and repairable parts were repaired as per Rule 4(5)(a). Consequently, the Tribunal concluded that the situation did not amount to a removal of capital goods, and the insurance compensation received should not be treated as sale proceeds of cleared goods, thereby negating the need for duty payment or credit reversal on the destroyed capital goods.

4. Ultimately, the Tribunal held that the appellant had established a prima facie case for the waiver of pre-deposit of dues as per the impugned order. Consequently, the Tribunal ordered the waiver of pre-deposit and stayed the recovery of dues until the appeal's final disposal. The judgment emphasized the specific circumstances of the case and the application of relevant rules and precedents in determining the liability for duty on destroyed capital goods.