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2016 (9) TMI 1020 - AT - Central ExciseRecovery of Cenvat credit - inputs and inputs contained in semi-finished goods - incident of fire took place in factory - destruction of plants and machinery, raw materials, stock of Work in Progress (WIP) goods and finished goods - Held that - as far as the CENVAT Credit on inputs lying in stock, as such, destroyed in fire, it is crystal clear that the same had not been used in or in relation to the manufacture of final product in their factory; thus the criterion of use, the basis on which the CENVAT Credit on inputs contained in WIP goods, has been allowed in the aforesaid cases, is undoubtedly not fulfilled. Thus, the credit involved on the inputs lying in stock and destroyed in the fire before being put to use could not be allowed to the Appellant and the same is required to be paid back/reversed. Period of limitation - Demand pertaining to inputs contained in WIP - Held that - the demand is not barred by limitation, in as much as even though an incident of fire took place on 07.12.2005, the Department was not categorically informed about the extent of damage of the inputs on which CENVAT Credit availed, and as such lying in stock destroyed in fire. It is not out of place to assume that the Appellant had informed the extent of damage of finished goods on 07th April 2006 when they filed remission application of the duty involved on the finished goods. The details of inputs destroyed in fire were furnished in May 2006. Therefore, the ld.Commissioner is right in considering that the demand is within the normal period of limitation of one year prescribed under sec. 11A being issued in Feb.2007. Demand of interest - amount paid by the appellant - Held that - it is found that the decision relied upon by the appellant was rendered relying upon the Division Bench judgment of the Tribunal in the case of Fleet Industries Vs CCE 2008 (8) TMI 317 - CESTAT, AHMEDABAD , in observing that Section 11AB would apply only to the cases of non-levy or short-levy of excise duty by non-payment of duty by the due date and not applicable to the inputs destroyed. We find that the said reasoning of the Tribunal did not find support from Hon ble Gujarat High Court in the case of CCE Vs Fleet Industries 2010 (12) TMI 420 - GUJARAT HIGH COURT . Hence, appropriate interest is payable on the credit amount reversed by the appellant. Imposition of penalty - Rule 15(1) of Cenvat Credit Rules, 2004 - Held that - we are of the view that the inputs lying in stock were destroyed in fire and the CENVAT credit involved, on such destruction, was required to be reversed since it was not used in or in relation to the manufacture of finished goods, the purpose for which it was procured and credit availed. It is observed that though the fire took place on 07.12.2005, the Preventive Officers during their visit on 09.03.2006 noticed that the appellants had not reversed the CENVAT credit. It is also observed that the appellants had filed remission application only on 07.04.2006. In view of the same, penalty is imposable under Rule 15(1) of the Cenvat Credit Rules, 2004 for contravention of any of the provisions of the said rules which invites liability to penalty under the provisions of the said Rule. Therefore, we find that the penalty is rightly imposed by the Commissioner (Appeals) in the impugned order under the said rule. However, we find that the penalty of ₹ 10 Lakh imposed by him is excessive and therefore, is reduced to ₹ 3,00,000/- (Rupees three lakhs). - Appeal disposed of
Issues Involved:
1. Recovery of CENVAT Credit on inputs/raw materials destroyed in fire. 2. Recovery of CENVAT Credit on inputs contained in Work in Progress (WIP) goods destroyed in fire. 3. Imposition of penalty under Rule 15(1) of CENVAT Credit Rules 2004. 4. Whether the demand is barred by limitation. 5. Applicability of interest on the reversed CENVAT Credit amount. Issue-wise Detailed Analysis: 1. Recovery of CENVAT Credit on Inputs/Raw Materials Destroyed in Fire: The Tribunal held that the CENVAT Credit on inputs lying in stock and destroyed in fire before being put to use could not be allowed. The Tribunal cited the case of Golden Polymex India Ltd, which stated that Modvat credit is available only when inputs are used in or in relation to the manufacture of the final product. Since the inputs were destroyed before usage, the credit of ?57,52,500/- is required to be reversed. 2. Recovery of CENVAT Credit on Inputs Contained in WIP Goods Destroyed in Fire: The Tribunal referred to the judgments of the Bombay High Court in the case of Asian Paints India Ltd and the Madras High Court in the case of Fenner India Ltd, which held that CENVAT Credit is admissible on inputs used in or in relation to the manufacture of WIP goods destroyed in fire. It was concluded that the appellants are not required to reverse the CENVAT Credit of ?66,39,000/- availed on the inputs used in or in relation to the manufacture of WIP goods destroyed in the fire. 3. Imposition of Penalty under Rule 15(1) of CENVAT Credit Rules 2004: The Tribunal observed that the inputs lying in stock were destroyed in fire and the CENVAT Credit involved on such destruction was required to be reversed since it was not used in or in relation to the manufacture of finished goods. The Tribunal noted that the appellants had not reversed the CENVAT Credit until the Preventive Officers' visit on 09.03.2006, and had filed the remission application only on 07.04.2006. Therefore, the penalty was rightly imposed but was reduced from ?10,00,000/- to ?3,00,000/- considering it excessive. 4. Whether the Demand is Barred by Limitation: The Tribunal found that the demand is not barred by limitation. Even though the fire incident occurred on 07.12.2005, the Department was informed about the extent of damage to the inputs only in May 2006. The show cause notice was issued on 09.02.2007, within the normal period of limitation of one year prescribed under Section 11A. 5. Applicability of Interest on the Reversed CENVAT Credit Amount: The Tribunal held that appropriate interest is payable on the credit amount of ?57,52,000/- reversed by the appellant. The Tribunal referred to the Gujarat High Court's decision in the case of CCE Vs Fleet Industries, which did not support the reasoning that Section 11AB would not apply to inputs destroyed. Conclusion: The Tribunal upheld the confirmation of reversal of CENVAT Credit of ?57,52,000/- with interest, and imposed a reduced penalty of ?3,00,000/-. The balance part of the order was set aside. The appeal was disposed of accordingly.
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