2016 (7) TMI 1024 - AT - Central Excise

Cenvat credit availed on inputs and inputs contained in final products lost due to fire - correctness of denial of credit which are attributable to the credit on inputs which are already used in the manufacture of final products and such final products is lost in fire - Levy of penalty - Held that - when the final product is lost in fire accident subsequently the question of reversal can be decided only in terms of Rule 3 (5C) of Cenvat Credit Rules, 2004. Since, in the present case there is no order of remission and as such I find that reversal of credit on such inputs contained in final product is pre-mature and unjustified. The appellants are not contesting the reversal of credit on the inputs lost in fire accident. Regarding the penalty imposed, there is no finding by the lower Authorities justifying the imposition of equal amount of penalty under Rule 15 (2) of Cenvat Credit Rules, 2004. Admittedly the credit has been rightly taken by the assessee and there is no illegality in that. The intervening fire accident resulted in possible loss of credit for the appellant which in any case cannot be penalized by invoking Rule 15 (2) without any reason attributed. In view of the above discussion, the finding in the impugned order w.r.t. Cenvat credit on inputs contained in final products lost in fire accident as well as the whole of penalty imposed on the appellant is set aside. - Decided in favor of assessee.

Summary

Issues:
1. Reversal of credit on inputs lost in a fire accident.
2. Imposition of penalty under Rule 15 (2) of Cenvat Credit Rules, 2004.

Analysis:
1. The appeal concerned the reversal of credit on inputs lost in a fire accident by a company engaged in manufacturing bulk drugs liable to Central Excise duty. The company had intimated the Department about the fire accident and sought remission of duty, but no formal order was issued. The audit revealed that the company reversed an amount towards Cenvat credit availed on inputs lost in the fire. The issue was whether the reversal of credit on inputs contained in finished goods lost in the fire was justified. The Tribunal found that since there was no order of remission, the reversal of credit on such inputs was premature and unjustified. The company had used the inputs for intended purposes, and there was no diversion or irregularity in their usage, leading to the decision to set aside the reversal of credit on inputs lost in the fire accident.

2. The second issue involved the imposition of a penalty on the company under Rule 15 (2) of Cenvat Credit Rules, 2004. The Tribunal noted that there was no justification for imposing a penalty as the company had intimated the Department about the fire accident promptly and had reversed the credits upon audit findings. The penalty was imposed beyond the normal period, and there was no evidence of fraud or willful misstatement by the company. Consequently, the Tribunal set aside the penalty imposed on the company, emphasizing that the loss of credit due to the fire accident could not be penalized without valid reasons. The decision highlighted the lack of grounds for penal action and the absence of findings justifying the penalty under the Cenvat Credit Rules.

In conclusion, the Tribunal allowed the appeal, setting aside the reversal of credit on inputs lost in the fire accident and the penalty imposed on the company. The judgment emphasized the need for proper justification and legal grounds for imposing penalties under the Cenvat Credit Rules, while also highlighting the importance of formal remission orders in determining credit reversals in such circumstances.