2005 (10) TMI 139 - AT - Central Excise

Summary

Issues:
Challenge to disallowance of Modvat credit on inputs destroyed in fire and flood.

Analysis:
1. Jurisdiction of the Tribunal: The preliminary objection raised by the Departmental Representative (D.R.) regarding the appeal's jurisdiction before the Appellate Tribunal under Section 35B(1) of the Central Excise Act, 1944, was dismissed. The Tribunal held that since the issue involved Modvat credit on finished goods lost due to fire and flood, falling under clause (d) of the First proviso, the Tribunal had jurisdiction to hear the appeal.

2. Insurance Claim and Legal Precedents: The appellant's advocate argued that insurance authorities had sanctioned insurance for the loss of goods by fire and flood without including excise duty. Referring to legal precedents like EID Parry (I) Ltd. v. CCE, Chennai, and Board's Circular No. 650/41/2002-CX, the advocate contended that Cenvat Credit need not be reversed for goods destroyed in the factory. However, the D.R. raised concerns about the clarity of insurance coverage regarding excise duty and cited the decision of Mafatlal Industries Ltd. The Circular dated 7-8-02 was withdrawn by the Board on 1-10-2004.

3. Denial of Modvat Credit: The Tribunal considered the denial of Modvat credit on inputs used for manufacturing finished goods destroyed by fire and flood. Referring to the Mafatlal Industries' case, the Tribunal concluded that remission of duty on finished goods lost due to fire was admissible, subject to the reversal of Cenvat credit on the inputs. The Tribunal also upheld the remission of duty on finished goods lost due to flood, emphasizing that the duty remission should be granted subject to the reversal of Cenvat credit on inputs in such lost goods.

4. Penalty Imposition: After considering the facts and circumstances, the Tribunal found that imposing a penalty on the appellants was unwarranted. Consequently, the Tribunal set aside the imposition of the penalty.

5. Decision: The appeal was allowed, modifying the Order-in-Original to uphold the remission of duty on finished goods lost due to fire and flood, subject to the reversal of Cenvat credit on inputs. The imposition of the penalty on the appellants was set aside.