2011 (10) TMI 535 - AT - Central Excise

Reversal of CENAVT Credit - Whether the appellants are required to reverse Cenvat credit of Rs. 5,53,466/- involved on the inputs and raw materials contained in the finished products destroyed due to fire - Held that - Nevertheless a reading of sub-rule (5C) of Rule 3 of Cenvat Credit Rules, 2004 would show that when the demand of duty is ordered to be remitted under Rule 21 of Central Excise Rules, 2002, Cenvat credit is required to be reversed - Since the application for remission has already been rejected, the appellant would be required to pay duty on the goods which were destroyed in fire. If duty is payable on the finished goods, Cenvat credit would be admissible. Therefore demand for Cenvat credit cannot be sustained - remission application being considered at a future date also, appellants would be required to reverse credit after a decision is taken - Decided in favour of assessee.

Issues:
1. Whether the appellants are required to reverse Cenvat credit on inputs and raw materials destroyed in a fire.
2. Validity of the rejection of the remission application by the Commissioner.
3. Interpretation of Cenvat Credit Rules regarding the reversal of credit in case of destroyed goods.
4. Admissibility of Cenvat credit when duty is payable on destroyed goods.

Analysis:

1. The central issue in this case is whether the appellants are obligated to reverse the Cenvat credit of Rs. 5,53,466/- on inputs and raw materials present in finished products destroyed due to a fire accident. The Department initiated proceedings for duty recovery on the destroyed goods, leading to a demand confirmation by the Additional Commissioner. The appellants' contention was that the demand for Cenvat credit availed on raw materials in finished goods contradicted the Cenvat Credit Rules. They argued that without an order granting remission of duty on destroyed goods, the reversal of Cenvat credit was not required. The rejection of their remission application due to failure to reverse the credit post-demand confirmation was also challenged.

2. The Commissioner rejected the remission application, emphasizing the appellants' non-reversal of Cenvat credit despite the demand confirmation. The Tribunal analyzed the provisions of Rule 3(5C) of the Cenvat Credit Rules, which stipulate the reversal of credit when duty remission is granted under Rule 21 of the Central Excise Rules. The Tribunal observed that in the absence of a remission order, the requirement to reverse credit did not apply. As the remission application was already dismissed, the Tribunal concluded that the appellants would need to pay duty on the destroyed goods, making Cenvat credit admissible. Consequently, the demand for Cenvat credit was deemed unsustainable.

3. The Tribunal highlighted that if the remission application were to be reconsidered in the future, the appellants would be obliged to reverse the credit post a decision. The judgment clarified that without a remission order, the appellants were not obligated to reverse the credit. Therefore, the impugned order rejecting the appeal was set aside, and relief was granted to the appellants, emphasizing the admissibility of Cenvat credit when duty is payable on goods destroyed in a fire accident.

4. In conclusion, the Tribunal's decision revolved around the interpretation of the Cenvat Credit Rules concerning the reversal of credit on destroyed goods and the necessity of a remission order to trigger such reversal. The judgment provided clarity on the admissibility of Cenvat credit in situations where duty is payable on goods destroyed due to unforeseen circumstances, such as a fire accident.

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