2011 (10) TMI 534 - AT - Central Excise

Refund of Central Excise Duty - Goods destroyed by fire - Appellant had made a claim to insurance company on the goods destroyed and the claim included the Cenvat credit also - Held that - Cenvat Credit Rule requires the assessee to reverse the Cenvat credit taken on the inputs contained in the finished products only and there is no specific provision to say that the amount should not have been claimed from the insurance company. In the absence of any specific provisions in the rules, the ld. Commissioner has erred in observing that the company can be deemed to have utilized the amount from insurance company for payment of duty of other final products. It is to be noted that even if the goods are destroyed, the appellants would have lost the entire value of the goods which would include raw materials, used labour and overheads for manufacture etc. Further the Cenvat credit is available to the appellants, once the raw materials are used. In such a situation, if such Cenvat credit is required to be reversed and if appellant receives compensation from the insurance company, it cannot be said to be unjust enrichment or cannot be said to amount to utilization of the amount for payment of duty of other final products. The loss of duty liability on the raw materials used has only been compensated by the insurance company on the basis of premium paid. In the absence of specific provisions in the statute, we cannot go into the question of intention or the deemed situation to deprive the benefit - Decided in favour of assessee.

Summary

Issues:
Refund of Central Excise Duty under Rule 21 of Central Excise Rules, 2002 for finished goods destroyed in fire. Rejection of refund application due to the appellant receiving Cenvat credit compensation from insurance company.

Analysis:
The appellant filed for a refund of Central Excise Duty amounting to Rs. 1,89,582/- for finished goods destroyed in a fire incident. The duty on inputs used for the final products was Rs. 1,01,085/-. However, the refund application was denied on the basis that the appellant had already received Cenvat credit compensation from the insurance company, which was considered as utilizing the amount for payment of duty on other final products, leading to the rejection of the refund claim.

The appellant contended that there is no provision in the Rules preventing them from receiving Cenvat credit compensation from the insurance company. The appellant relied on previous Tribunal decisions to support their argument, emphasizing that the Rules do not mandate the appellant to refrain from claiming Cenvat credit compensation from the insurance company. The appellant argued that the Commissioner's conclusion was erroneous and not supported by any specific provision in the Rules.

On the other hand, the Departmental Representative reiterated the Commissioner's observation supporting the denial of the refund claim based on the appellant's receipt of Cenvat credit compensation from the insurance company. However, the Tribunal found merit in the appellant's argument. The Tribunal noted that the Rules only require the reversal of Cenvat credit taken on inputs contained in finished products and do not explicitly prohibit claiming compensation from the insurance company.

The Tribunal emphasized that in the absence of specific provisions in the statute, it would be unjust to assume that the appellant utilized the insurance compensation for payment of duty on other final products. The Tribunal highlighted that the loss incurred due to the destruction of goods included raw materials, labor costs, and overheads, which were compensated by the insurance company. The Tribunal also stressed that the availability of Cenvat credit once raw materials are used supports the appellant's position.

Ultimately, the Tribunal allowed the appeal, setting aside the impugned order rejecting the refund claim. The Tribunal concluded that the denial of the refund claim based on the appellant's receipt of Cenvat credit compensation from the insurance company was unfounded, as there were no specific provisions prohibiting such compensation in the Rules. The Tribunal also found support in previous decisions cited by the appellant, further strengthening the decision to allow the appeal.