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Issues involved: Determination of remission of duty on goods burnt in fire, entitlement to Modvat credit on inputs, imposition of penalty, and payment of interest.
Remission of Duty on Burnt Goods: The appellants had provided fire fighting equipment and trained personnel in their factory, yet a fire broke out causing loss of finished goods. The excise authorities demanded central excise duty on the burnt goods. The appellants argued for remission of duty citing case laws. The Tribunal analyzed Rule 49 of the Central Excise Rules, which allows remission of duty in case of goods lost by unavoidable accident. The insurance survey report indicated the fire was accidental, supported by fire brigade and police reports. The Tribunal concluded that remission of duty was admissible as the fire was unavoidable and the appellants had taken necessary precautions. Entitlement to Modvat Credit on Inputs: The appellants also claimed Modvat credit on inputs used in the finished goods destroyed by fire. The Tribunal referred to relevant case laws and held that remission of duty on finished goods does not equate to exemption for inputs. While remission of duty on finished goods was allowed, credit for duty paid on inputs was deemed demandable. Allowing credit on inputs when finished goods suffer no duty would provide unintended benefits to the appellants, contrary to the Modvat scheme's purpose. Therefore, the Tribunal held that credit on inputs was not permissible in this case. Imposition of Penalty and Interest: The Tribunal decided that penalty was not imposable in the circumstances. However, interest on the disallowed Modvat credit would be payable as per Rule 57-I of the Central Excise Rules, 1944. Conclusion: The appeal was partly allowed, with remission of duty on burnt goods granted, but entitlement to Modvat credit on inputs denied. Penalty was not imposed, and interest on disallowed Modvat credit was to be paid as per the rules.
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