2016 (8) TMI 842 - AT - Central Excise

Reversal of input credit - inputs used in the manufacture of finished goods - destroyed in fire - Held that - in view of the decision of larger bench in the case of Grasim Industries vs.-Commr. Of Central Excise, Indore 2006 (8) TMI 69 - CESTAT,NEW DELHI wherein it was held that in respect of goods which were lost or destroyed by natural cause or by natural accident, does not provide any condition regarding reversal of credit taken in respect of inputs used on such goods, the First Appellate Authority was not correct in holding that cenvat credit with respect to inputs used in the manufacture of finished goods, destroyed in fire, is required to be reversed. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Whether the appellant is required to reverse the input credit with respect to inputs used in the manufacture of finished goods destroyed in fire.
2. Whether the appellant's appeal against the order dated 13.03.2002 regarding the reversal of credit is valid.

Analysis:
1. The appeal was filed by the appellant against the Order-in-Appeal passed by the Commissioner (Appeal-I), Central Excise, Kolkata. The appellant argued that the First Appellate Authority relied on the case law of Mafatlal Industries Ltd. and held that when central excise duty on the final product is remitted, the cenvat credit with respect to inputs in destroyed goods must be reversed. The appellant cited the case law of Grasim Industries, where it was held that the reversal of cenvat credit of inputs used in finished goods destroyed in fire is not required. The Tribunal, in the case of Grasim Industries, held that the rules do not provide for the reversal of credit in such cases, and inputs can be considered to have been put to intended use for manufacturing the final product. Therefore, the First Appellate Authority's decision was set aside based on the settled law provided by the Tribunal.

2. The Revenue argued that the appellant did not file an appeal against the order dated 13.03.2002, which allowed the remission application subject to the condition that the input credit used in finished goods destroyed in fire would be reversed. However, the appellant contended that the demand raised in the show cause notice dated 04.04.2005 was beyond the one-year period and was time-barred. The Tribunal accepted the appellant's contention and held that the demand raised was indeed time-barred. As a result, the appeal filed by the appellant was allowed with consequential relief.

This judgment clarifies the legal position regarding the reversal of input credit in cases where finished goods are destroyed in fire, providing a clear interpretation of the relevant rules and case laws to determine the appellant's obligations in such situations.