2016 (7) TMI 986 - AT - Central Excise

Reversal of cenvat credit on capital goods - loss of capital goods in the fire - Appellant claimed compensation from M/s.Oriental Insurance Co.Ltd. Chennai on which duty element involved on lost capital goods - Held that - the credit was disallowed only on the premise that the original equipment was purchased in 1991 when no credit scheme was in force. It is an undisputed fact that there was no such provision in Cenvat rules for denial of capital goods credit on the parts imported for replacement, particularly during that period original equipments were not covered under modvat scheme. The assessee has paid the premium for insurance which covered the risk of the capital goods. The insurance company in terms of the policy agreement, has compensated the assessee with the value of goods destroyed in fire, including the excise duty paid by them. The Compensation scheme from the insurance company has no relevance for availment of credit on capital goods purchased in 2006. The fact that the appellant claimed insurance, which is inclusive of Excise Duty, is not at all relevant. Demand set aside - Decided in favor of assessee.

Summary

Issues:
Denial of capital goods credit on spare parts due to a fire accident in 2006.

Analysis:
The appeal challenged the Order-in-Appeal No. 44/2014 regarding the denial of capital goods credit on spare parts purchased for replacing damaged parts due to a fire accident in 2006. The appellant, engaged in manufacturing cast articles, faced a fire accident in 2006, leading to a demand for credit involved under Rule 14 of CCR 2004. The adjudicating authority confirmed the demand, which was upheld by the Commissioner (Appeals), prompting the appeal to the Tribunal.

The appellant's counsel argued that as the original capital goods were purchased in 1991 without a modvat credit scheme, there was no irregular credit availment. The spare parts purchased in 2006 were not covered under the modvat scheme, and there was no provision to deny credit based on the absence of a credit scheme in 1991. Citing case law, the counsel contended that the appellant was not liable to reverse the cenvat credit for the destroyed goods.

The respondent reiterated the findings of the adjudication order, emphasizing that the imported parts for repair did not amount to 'manufacture' of the final product. The respondent argued against the appellant receiving double benefit through insurance compensation inclusive of excise duty.

The Tribunal analyzed the case and found that the denial of credit based on the absence of a credit scheme in 1991 was unfounded. The insurance compensation received by the appellant, covering the destroyed goods and excise duty, did not impact the credit availed on spare parts in 2006. Referring to a relevant case law, the Tribunal highlighted the indefeasible nature of credit once validly taken, emphasizing that the excise authorities could only reverse credit if irregularly taken. The Tribunal concluded that the appellant was entitled to the credit, dismissing the appeal against the denial.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal, based on the legal principles governing credit availment and the specific circumstances of the case.