2014 (3) TMI 919 - AT - Central Excise

Waiver of pre-deposit of CENVAT Credit - Inputs destroyed during process of manufacture - though had issued the inputs for manufacture of finished goods, but the same were not used in the manufacture but had been lost/destroyed in the process. - Held that - There is no allegation that the inputs as such were lost and hence no credit would be admissible on the same. On the issue of eligibility of CENVAT Credit, on inputs contained in the WIP material lost/damaged, prima facie, we find that this Tribunal in the case of Arvind International Ltd. s case (2012 (12) TMI 264 - CESTAT, NEW DELHI) had taken a view that in respect of the inputs, contained in the work in process material, destroyed in fire, is eligible to CENVAT Credit. In view of the said decision, we are of the opinion that the Applicant could able to make out a prima facie case for total waiver of pre-deposit of dues adjudged - Stay granted.

Summary

Issues: Application for waiver of pre-deposit of CENVAT Credit and penalty under Rule 15(2) of CENVAT Credit Rules, 2004.

The judgment addresses the issue of waiver of pre-deposit of CENVAT Credit and penalty imposed under Rule 15(2) of CENVAT Credit Rules, 2004. The Applicant, due to power failure resulting in the loss of work-in-progress goods, filed an insurance claim net of CENVAT Credit involved in the inputs used in the lost materials. The Applicant argued that as the inputs were issued for the manufacture of finished goods and the waste/scrap generated due to the power failure did not negate their use in the manufacturing process. The Tribunal considered the case of Arvind International Ltd. vs. CCE, Jaipur and found that inputs contained in work-in-progress material destroyed in fire were eligible for CENVAT Credit. Consequently, the Tribunal held that the Applicant had a prima facie case for the total waiver of pre-deposit of dues adjudged, and all dues were waived with recovery stayed during the appeal process.

The key contention from the Applicant's side was that the inputs used in the work-in-progress materials were indeed intended for the manufacture of finished goods, and any waste or scrap generated due to the power failure did not negate their original purpose. The Applicant also highlighted that a portion of the damaged work-in-progress material was cleared on payment of duty, and some was reused in the manufacturing process, further supporting their argument. The Applicant relied on the decision of Arvind International Ltd. to strengthen their case.

On the other hand, the Revenue argued that the Applicant had availed CENVAT Credit on inputs that were not used in the manufacture of finished goods at the time of the power failure. The Revenue contended that since the Applicant claimed insurance on the inputs available in the factory, it indicated that those inputs were not issued for manufacturing purposes and were part of the damaged work-in-progress materials. The Revenue referred to Annexure-11 of the paper book to support their position.

After hearing both parties and examining the records, the Tribunal found that the show cause notice alleged that the inputs issued for manufacturing finished goods were not used and were lost or destroyed during the manufacturing process. However, the Tribunal noted that there was no allegation that the inputs themselves were lost, and based on the precedent set by Arvind International Ltd.'s case, inputs contained in work-in-progress materials destroyed in fire were eligible for CENVAT Credit. Therefore, the Tribunal concluded that the Applicant had a prima facie case for the total waiver of pre-deposit of the dues adjudged, leading to the waiver of all dues with recovery stayed pending the appeal process.