2010 (2) TMI 72 - HC - Central Excise

Cenvat Credit on Inputs used in goods destroyed in fire - The Revenue has impugned the order (Annexure A-3) passed by the Customs, Excise and Service Tax Tribunal (for short the Tribunal ) vide which the appeal filed by the Department was dismissed and the respondents was held entitled to claim Cenvat credit on the finished/semifinished goods which were destroyed in a fire held that - we are of the considered opinion that claim of Cenvat credit on the inputs, used in the manufacture of final product and which were destroyed in the fire, could be availed of by the manufacturer. However, in case of settlement with regard to the amount of Cenvat credit received by the manufacturer, then they shall remit the same back to the Department within a period of three months from the date of settlement with the insurance company

Summary

Issues:
Claim of Cenvat credit on destroyed goods.

Analysis:
The case involved a dispute regarding the entitlement of the respondent, engaged in the manufacture of Polyurethane Foam, to claim Cenvat credit on finished/semifinished goods destroyed in a fire. The respondent had availed of the Cenvat credit on inputs used in the manufacturing process of goods destroyed in the fire. The adjudicating authority initially ruled in favor of the Revenue, stating that since the final product was not sold, the Cenvat credit should be refunded. However, the Commissioner (Appeals) overturned this decision, holding that the manufacturer was entitled to claim Cenvat credit as the inputs were destroyed in the fire, a fact not disputed by the Department.

The Tribunal, in the impugned order, dismissed the Revenue's appeal, affirming the manufacturer's right to claim Cenvat credit on destroyed goods. The key question before the court was whether Cenvat credit is allowable on inputs within finished goods destroyed in a fire, especially when the credit had already been utilized for duty payment on previously cleared goods. The court referred to precedents such as Commissioner of Central Excise, Bangalore vs. Tulsyan Nec Ltd. and a Tribunal ruling, which supported the manufacturer's right to claim Cenvat credit on inputs lost in a fire accident.

The court, after considering the facts and legal precedents, concluded that the manufacturer could indeed claim Cenvat credit on inputs used in the manufacturing process of destroyed goods. However, in case of a settlement with the insurance company regarding the Cenvat credit amount received, the manufacturer was directed to remit the same back to the Department within three months from the settlement date. Therefore, the orders of the Commissioner (Appeals) and the Tribunal were modified accordingly. The court ruled in favor of the assessee, subject to the mentioned modification, and disposed of the appeal.

In conclusion, the judgment clarified the manufacturer's right to claim Cenvat credit on inputs used in goods destroyed in a fire, emphasizing the obligation to remit the credit amount back to the Department in case of a settlement with the insurance company.