2007 (11) TMI 213 - AT - Central Excise

In this case neither the capital goods have been cleared as such nor removed on sale so there is no justification to seek reversal on said goods which after being put to use stand fully destroyed in the fire - finished goods & semi-finished goods fully destroyed in fire in spite of taking all the precautions so remission allowed - credit is not required to be reversed on inputs destroyed in fire - not involved intentionally in defrauding the exchequer so penalty not justified

Summary

Issues:

1. Confirmation of Cenvat credit availed on capital goods destroyed in fire.
2. Demand of central excise duty on finished and semi-finished goods destroyed in fire.
3. Demand of Cenvat credit availed on inputs destroyed in fire.
4. Imposition of penalty on the appellants.

Issue 1: Confirmation of Cenvat credit availed on capital goods destroyed in fire

The appellants, engaged in manufacturing plastic raw materials, faced a fire incident resulting in the destruction of various goods. The Commissioner directed the appellants to pay Modvat credit for machinery/capital goods destroyed in the fire. The Tribunal disagreed with the reasoning that credit availed on capital goods becomes wrongly availed upon destruction. They clarified that as the capital goods were used for several years before the fire incident and were not removed or sold, there was no justification for reversing the Modvat credit. The Tribunal set aside the demand for Modvat credit on capital goods.

Issue 2: Demand of central excise duty on finished and semi-finished goods destroyed in fire

The Commissioner confirmed a central excise duty demand on finished and semi-finished goods destroyed in the fire, citing the rejection of the appellants' application for remission of duty. However, the Tribunal noted that the confirmation was based on the rejection of the application, which was issued on the same day as the impugned order. The Tribunal found no justification for the duty demand as the goods were destroyed despite the appellants taking necessary precautions. Consequently, the demand of Rs.9,30,300 was set aside.

Issue 3: Demand of Cenvat credit availed on inputs destroyed in fire

The Tribunal referred to a Larger Bench decision stating that credit availed on inputs destroyed in a fire does not need to be reversed. As per the precedent, the confirmation of the demand for Cenvat credit on inputs destroyed in the fire was set aside by the Tribunal.

Issue 4: Imposition of penalty on the appellants

The Commissioner imposed a penalty of Rs.25 lakhs on the appellants for failure to reverse/pay the Cenvat credit on capital goods immediately. The Tribunal found the penalty unjustified, considering the appellants' significant loss due to the fire incident. They highlighted that the penalty was imposed on a legal issue without any intentional wrongdoing by the appellants. Therefore, the Tribunal set aside the penalty, stating it was a harsh action against the appellants.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief to the appellants. The judgment was pronounced on 28-11-2007 by the Appellate Tribunal CESTAT AHMEDABAD.