2014 (11) TMI 704 - HC - Central Excise

Reversal of CENVAT Credit - Whether on facts and in the circumstances of the case, the Hon ble CESTAT, is justified in law in permitting the first respondent M/s. Fenner India Ltd., to avail the Cenvat credit of duty paid on inputs as work- in-progress (WIP) which was destroyed in the fire accident - Held that - Inputs on which the assessee availed Cenvat credit were destroyed in a fire accident while the work was in progress in the assessee s factory on 5-5-2006. The fire accident was informed to the Department in writing on the same day - it is not in dispute that the inputs on which the Cenvat credit was availed were destroyed when the work was in progress. Once this fact is not disputed, then the assessee cannot be called upon to reverse the credit. goods destroyed in fire after being used for many years cannot be said as not used in the manufacture of final and finished product and the assessee need not reverse the credit availed on inputs used in finished or semi-finished goods. Further clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004 would be invoked where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the Cenvat credit taken on the inputs used in the manufacture of production of said goods shall be reversed . question of reversal would occur only when the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002. The said Rule deals with remission of duty. Admittedly, the assessee has not claimed any remission and no final product has been removed. Hence, for that reason also, reliance was placed on clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004. - Following decision of Commissioner of Central Excise and Customs v. Biopac India Corporation Ltd. 2010 (7) TMI 433 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Availing Cenvat credit on raw materials destroyed in fire.
2. Reversal of Cenvat credit on destroyed inputs.
3. Interpretation of Rule 3 of the Cenvat Credit Rules, 2004.
4. Applicability of clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004.
5. Legal implications of destruction of goods during manufacturing process.

Analysis:
1. The case involved the appellant challenging an order by the Tribunal regarding the availing of Cenvat credit on raw materials destroyed in a fire accident during the manufacturing process of Oil Seals. The appellant argued that the inputs were used for the production of final products and, therefore, the question of reversing the credit did not arise. The Original Authority, however, directed the appellant to reverse the Cenvat credit availed.

2. The First Appellate Authority upheld the Original Authority's decision but set aside the penalty imposed. The Tribunal, considering the destruction of goods during manufacturing, held that the appellant was not required to reverse the Cenvat credit availed. The Revenue appealed, questioning the Tribunal's decision on whether the appellant should be allowed to avail Cenvat credit on destroyed inputs.

3. The High Court analyzed the case, emphasizing that the inputs on which the Cenvat credit was availed were destroyed during the manufacturing process. The Court referred to a previous case where Modvat credit was denied on destroyed inputs not used in the final products. The Court found that since the inputs were destroyed after being issued, the appellant was justified in availing the credit.

4. The Court rejected the Revenue's argument based on clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004, which was inserted later. The Court cited a similar view by the High Court of Gujarat, stating that goods destroyed after being used for many years should not require the reversal of credit. The Court clarified that the clause applies when duty is ordered to be remitted, which was not the case here.

5. Ultimately, the Court affirmed the Tribunal's decision, rejecting the Revenue's appeal and answering in favor of the appellant. The Court concluded that the appellant was not obligated to reverse the Cenvat credit availed on inputs destroyed during the manufacturing process. The Civil Miscellaneous Appeal was dismissed with no costs incurred.