2015 (1) TMI 544 - AT - Central Excise

CENVAT Credit - inputs in WIP destroyed in fire - appellant has failed to reverse the CENVAT Credit on the inputs involved (in WIP) which was lost in fire - contravention of the provisions of Rule 3 of Cenvat Credit Rules, 2002 - Penalty u/s 11AC read with Rule 13 - confiscation under Section 34 of the Act - Held that - during the relevant period there no provision for reversal of cenvat credit on inputs destroyed in fire - Case is squarely covered by the decision of the Hon ble Supreme Court in the case of Indchem Electronics (2003 (4) TMI 556 - Supreme Court of India) and ruling of the Hon ble Karnataka High Court 2006 (8) TMI 66 - HIGH COURT OF KARNATAKA relied upon by the Revenue is of no help. In these circumstances, I allow the appeal of the appellant and set aside the impugned order - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance of input credit for loss of Work-in-Progress (WIP) due to fire incident.

Analysis:
The appellant, a manufacturer of excisable goods, appealed against the disallowance of input credit for WIP loss due to a fire incident. The Insurance Company compensated the appellant for the loss of WIP destroyed in the fire. The dispute arose as the appellant failed to reverse the CENVAT Credit on the inputs involved in the WIP lost in the fire, contravening Rule 3 of Cenvat Credit Rules, 2002. The original adjudicating authority confirmed the demand, imposed interest and penalty under Section 11AC read with Rule 13 of the Rules. The Commissioner (Appeals) upheld the decision, stating that if inputs are not used in or in relation to the manufacture of final products, credit will not be admissible. The appellant argued citing precedents where no reversal of CENVAT Credit was required for destroyed goods during the manufacturing process.

The appellant relied on various tribunal rulings and a Supreme Court decision to support their argument that there was no requirement to reverse CENVAT Credit for destroyed goods. The Revenue, however, referred to a Karnataka High Court judgment regarding recovery of CENVAT Credit for inputs destroyed in a fire accident. The High Court directed the assessee to remit the benefit back to the Department if the Insurance claim was settled. The Tribunal found the case aligned with the Supreme Court decision and allowed the appeal, setting aside the impugned order. The appellant was entitled to consequential benefits.

In conclusion, the Tribunal ruled in favor of the appellant, citing the Supreme Court decision and rejecting the Revenue's reliance on the Karnataka High Court judgment. The appellant's appeal against the disallowance of input credit for WIP loss due to a fire incident was successful, granting them consequential benefits.