2015 (2) TMI 701 - HC - Central Excise

Cenvat credit on inputs used in goods which lost in fire - Rule 57A of Central Excise Rules,1944 - Held that - Mr. Motwani s reliance on Rule 57A is also well placed inasmuch as what the legislature at that time envisaged was that so long as the goods styled as inputs have been brought in for the purpose of usage in or in relation to the manufacture of the said final products, the credit can be claimed and in terms of the Central Excise Rules, 1944, as applicable. There was nothing in the Rules which would mandate that the credit of duty can be claimed and in relation to such inputs only if there is emergence of a final product or that the manufacture of the final product is complete. Had that been the intent, the words goods used in or in relation of the manufacture of the said final products would not have appeared in sub-rule (1) of Rule 57A . Their plain meaning enables us to agree with the Tribunal that the intent of the rule makers was not to disallow credit merely because a contingency over which the assessee had no control takes place. In the present case, none could have predicted a fire occurring in the manufacturing plant of the assessee. That the fire occurred and at the relevant time but the goods were already utilized in the process of manufacturing of the final product, then the credit paid on those goods was admissible. There is no dispute about these facts, including the fire. In the circumstances, the Tribunal took the view that the language of the Rule does not permit it to agree with the Revenue and deny the credit. The same view was take in the case of Indchem Electroncis 2002 (9) TMI 195 - CEGAT, CHENNAI and which also upheld by supreme court by order no. 2003 (4) TMI 556 - Supreme Court of India . Decided against revenue.

Summary

Issues:
1. Eligibility of modvat credit on destroyed in-process inputs.
2. Coverage of inputs lost due to fire under Rule 57D.
3. Fulfillment of provisions of Rule 57A by the Assessee.
4. Confirmation of penalty set aside by the Tribunal based on Rule 571(4).

Analysis:
1. The appeal questioned the eligibility of the Assessee to avail and utilize modvat credit on in-process inputs destroyed in a fire. The dispute revolved around whether the Assessee should reverse the modvat credit or if it was inadmissible as per Rule 57A. The Tribunal's decision was challenged based on the interpretation of the provisions regarding the utilization of inputs in the manufacture of finished goods.

2. Another issue raised was whether inputs lost due to fire, even if not used in relation to final products with no dutiable product emerging, could be covered under Rule 57D. The contention was whether the destruction of inputs in a fire event should affect the admissibility of modvat credit under the specified rules.

3. The case also examined whether the Assessee fulfilled the provisions of Rule 57A regarding the utilization of inputs in the manufacture of finished goods. The arguments presented by both parties focused on the interpretation of the rules and the implications of the fire incident on the admissibility of the credit claimed.

4. Additionally, the Tribunal's confirmation of setting aside the penalty under sec. 173Q based on Rule 571(4) was contested. The discussion centered on whether the penalty could only be imposed if specific conditions were met as outlined in the relevant rule. The Tribunal's decision was scrutinized for its adherence to the legal framework and the justification provided for overturning the penalty.

In conclusion, the High Court upheld the Tribunal's decision in favor of the Assessee, emphasizing the interpretation of Rule 57A and the admissibility of credit in situations where unforeseen events, such as the fire, impacted the manufacturing process. The Court found no legal basis to overturn the Tribunal's ruling, deeming it consistent with the legislative intent behind the rules. The judgment highlighted the importance of considering the specific language of the rules and the factual circumstances in determining the applicability of modvat credit in such cases.