2019 (6) TMI 191 - AT - Central Excise

Incidence of Central Excise Duty - goods manufactured but not cleared as they were destroyed - Whether the appellants were liable to pay duty on the goods which they had manufactured but had not cleared as they were destroyed during the Hudhud cyclone or whether it is sufficient that the appellant had reversed the CENVAT Credit taken on the inputs which have gone into the manufacture of such products? - HELD THAT - Central Excise duty is a tax levied on the manufacture of goods. Section 3 of Central Excise Act is the charging section which states that there shall be levied and collected a duty of excise to be called CENVAT on all excisable goods which are produced and manufactured in India. Therefore, the levy of Central Excise Duty comes from the manufacture itself. Once the goods are manufactured, levy applies. When it is the duty become payable? - Rule 4 of Central Excise Rules, 2002 - HELD THAT - While the duty becomes leviable, as soon as the goods are manufactured or produced, it becomes payable when they are removed from the place where they are produced or manufactured. When should be duty which is payable, to be paid? - Rule 8 of the Central Excise Rules 2002 - HELD THAT - The levy of duty would be as soon as the goods are manufactured or produced. But the duty becomes payable only if the goods are removed from the factory and the duty so payable has to be paid only by 5th to 6th of next month. In the absence of any specific legal provision, duty cannot be demanded on the goods which are lost or destroyed in the factory. It does not matter whether the assessee has sought remission or not. The duty, though leviable, does not become payable in such cases and there is no date by which the said duty has to be paid - the demand of CENVAT Credit on the lost/destroyed goods treating them as final products, is not sustainable. As far as CENVAT on the inputs contained in the final products is concerned, the same has already been reversed by the appellant and he is not contesting the same. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Short payment of duty.
2. Irregular availment of CENVAT.
3. Excess Credit of CENVAT.
4. Non-payment of CENVAT Credit on destroyed goods due to Hudhud cyclone.

Issue-wise Detailed Analysis:

1. Short Payment of Duty:
The appellant conceded that there was a short payment of duty amounting to ?1,643. This amount was paid along with ?112 as interest and appropriated before the issuance of the Show Cause Notice (SCN). The penalty was waived, and the department did not appeal against this waiver. Therefore, this issue reached finality.

2. Irregular Availment of CENVAT:
The appellant acknowledged the irregular availment of CENVAT credit totaling ?114,439 and ?117,724. These amounts were paid, and no interest was applicable. The penalties imposed were set aside by the first appellate authority, and the department did not appeal against this decision. Hence, these issues also reached finality.

3. Excess Credit of CENVAT:
The appellant admitted to availing excess CENVAT credit amounting to ?515,917. This amount was paid without any interest. The penalty was waived, and the department did not appeal against this waiver, bringing this issue to finality as well.

4. Non-payment of CENVAT Credit on Destroyed Goods:
The primary dispute centered on the CENVAT credit for goods destroyed during the Hudhud cyclone. The department demanded a reversal of CENVAT credit amounting to ?12,03,530, while the appellant argued that only ?10,63,070 was debitable, which they had already reversed. The appellant contended that the department erroneously included overheads in the calculation, which were not part of the CENVAT credit availed. The insurance claim for the destroyed goods included overheads, but the appellant asserted that only the input value was relevant for CENVAT credit reversal.

The department argued that the destroyed goods were finished products, not raw materials, and thus, duty was payable on the final products. The department emphasized that the appellant should have sought remission of duty under Rule 21 of the Central Excise Rules, 2002, which they failed to do. Consequently, the demand for Central Excise duty on the final products was justified.

Judgment Analysis:
The tribunal examined whether the appellant was liable to pay duty on goods destroyed during the cyclone. It was established that Central Excise duty is levied on the manufacture of goods as per Section 3 of the Central Excise Act. Duty becomes payable when goods are removed from the place of manufacture according to Rule 4 of the Central Excise Rules, 2002. However, in cases where goods are destroyed before removal, Rule 21 provides for remission of duty.

The tribunal referred to the CBEC Circular No. 907/27/2009-CX, which clarified that if goods are destroyed and not removed, no duty is payable unless remission is sought. The circular also stated that if the value of finished goods is written off, the manufacturer must pay excise duty or reverse the credit on inputs if duty is remitted. However, the tribunal noted a gap in the rules, as there was no provision for duty payment on destroyed goods not removed from the factory.

The tribunal concluded that in the absence of a specific legal provision, duty cannot be demanded on goods destroyed in the factory. The appellant had already reversed the CENVAT credit on inputs used in the destroyed goods, and the demand for additional duty was not sustainable. Consequently, the penalty imposed was also set aside.

Conclusion:
The appeal was allowed, and the demand for CENVAT credit on destroyed goods was set aside. The penalty imposed was also annulled. The appellant's reversal of CENVAT credit on inputs was deemed sufficient, and no further demand was justified. The judgment was pronounced in open court on 03.06.2019.