2005 (7) TMI 15 - AT - Central Excise

Central Excise Cenvat/Modvat credit Capital goods destroyed due to fire and at the time of clearance of destroyed capital goods, appellant assessed duty liability and paid the same Demand of credit is not justified

Summary

Issues:
1. Recovery of Modvat credit in respect of destroyed inputs and capital goods.
2. Denial of Modvat credit on capital goods due to destruction in a fire incident.
3. Imposition of personal penalty.

Analysis:
Issue 1:
The appellants, engaged in the manufacture of plastic articles, availed Modvat credit on inputs and capital goods. Following a fire incident that destroyed inputs and capital goods, proceedings were initiated for recovery of Modvat credit. The Commissioner's order demanded duty payment of Rs. 44,59,552/- for destroyed inputs and Rs. 33,39,917/- for capital goods, along with a personal penalty of Rs. 14.00 lakhs. The appellants challenged this order.

Issue 2:
The appellants acknowledged the need to reverse the credit for destroyed inputs not used in manufacturing the final product during the fire. However, they contested the denial of Modvat credit on capital goods. The appellants argued that they complied with Rule 3(4) of the Cenvat Credit Rules by paying duty on the damaged capital goods at the time of clearance, as required. They maintained that denial of the originally availed Modvat credit for capital goods was unjustified, emphasizing that the goods had been in use for several years before the fire incident.

Issue 3:
The Tribunal agreed with the appellants' argument regarding the denial of Modvat credit on capital goods. Since the duty on the damaged capital goods had been paid as per the valuation provisions of the Central Excise Act, the denial of the credit was deemed unjustified. As a result, the demand for duty of Rs. 33,39,917/- related to capital goods and the imposed penalty of Rs. 14.00 lakhs were set aside. However, the demand of duty amounting to Rs. 44,59,552/- for destroyed inputs was confirmed as it was not contested.

In conclusion, the Tribunal disposed of the appeal by setting aside the demand for duty and penalty concerning the denial of Modvat credit on capital goods, while confirming the demand for duty on destroyed inputs.