2014 (6) TMI 785 - AT - Central Excise

Duty demand - Reversal of CENVAT Credit - Credit on destroyed goods - Goods destroyed in flood - Held that - Goods lost in flood were semi-finished goods and duty on excisable goods is payable at the time of clearance only. Semi-finished goods cannot be cleared, therefore duty is not payable by the appellants. Following the decision of this Tribunal in Lakshmi Precision Tools Ltd. - 2005 (11) TMI 347 - CESTAT, CHENNAI , this Tribunal has categorically held that stock in progress damaged in fire accident, appellant not intending to claim remission of duty on any goods destroyed in fire accident, hence not filed any remission application nor reported the accident to the Central Excise department. In that circumstance, payment of duty is not sustainable. Further it was held that issue in the case of Elam Pharma Pvt. Ltd. (2010 (6) TMI 473 - CESTAT, AHMEDABAD) this Tribunal held that issue of reversal of credit arises only when the final product destroyed in fire. Admittedly, in this case the goods are in semi-finished condition lost in flood. Therefore, appellants are not required to reverse input credit also. - Decided in favour of assessee.

Summary

Issues:
Appeal against duty demand on semi-finished goods destroyed in floods.

Analysis:
The appellant, a manufacturer of excisable goods, faced the issue of duty demand on semi-finished goods destroyed in floods. Despite receiving insurance claims, the authorities demanded duty payment on the destroyed goods. The appellant had already reversed Cenvat credit on inputs contained in the destroyed goods, but the authorities insisted on duty payment.

During the hearing, the appellant argued that no finished goods were available at the time of the flood, only inputs and semi-finished goods were destroyed. They contended that since semi-finished goods cannot be cleared from the factory, duty demand is not justified. The appellant cited precedents like Biopac India Corpn. Ltd., CCE v. Beardsell Ltd., and Elam Pharma Pvt. Ltd. to support their position.

On the other hand, the respondent reiterated the duty demand, emphasizing that duty on the lost semi-finished goods should be payable. The appellant's position was that duty on excisable goods is payable only at the time of clearance, and since semi-finished goods cannot be cleared, duty is not applicable.

The Tribunal, after considering both sides, concluded that duty on semi-finished goods lost in the flood is not payable by the appellants. Referring to the decision in Lakshmi Precision Tools Ltd., the Tribunal emphasized that duty payment is not sustainable when stock in progress is damaged due to unforeseen circumstances. The Tribunal also highlighted that the issue of reversing credit arises only when the final product is destroyed, not in the case of semi-finished goods lost in a flood. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.