2024 (8) TMI 1399 - AT - Central Excise

Remission of excise duty on the goods destroyed in fire - requirement to pay the Cenvat credit in respect of the inputs contained in the finished goods which were destroyed in fire. Remission of duty - HELD THAT - There is no dispute that the goods were destroyed in fire . The fire accident was unavoidable and on the entire fire accident the Insurance Company also processed the insurance claimed and the same has been sanctioned to the appellant. In such case the appellant is clearly entitled for the remission of the duty in respect of the goods destroyed in fire as provided under Rule 21 of the Centra Excise Ryles, 2002 - From the plain reading of the rule 21, the objective of the Rule is that if the goods have been lost or destroyed by natural cause or by unavoidable accident at any time before the removal , the commissioner may remit the duty payable on such goods subject to conditions as may be imposed by him by order in writing. In the present case, there is no dispute that the goods have been destroyed in fire which is an unavoidable accident and there is no evidence of any mis-chief or malafide intention of the appellant in the fire accident. Therefore, as per the facts and circumstances on record, the appellant s case is clearly covered by Rule 21 of the Central Excise Act, 2002. Reversal of Cenvat credit on input as such destroyed in the fire - HELD THAT - The appellant is not contesting as the same as has been reversed by the appellant. Accordingly, the said reversal is maintained. In the present case also the period involved is January-2006 during which there is no specific provision for reversal of credit which was brought by Rule 5 (D) (C) of Rule 3 of Cenvat Credit Rules, 2004 vide Notification No 33/2007 CE (NT ) dated 07.09.2007. Therefore, prior to September, 2007 there was no requirement of reversal of Cenvat Credit as held in the above judgments. Therefore, the appellant is not required to reverse the Cenvat credit in respect of inputs contained in the finished goods which were destroyed. The impugned order stands modified - Appeal allowed.

Issues Involved:
1. Eligibility for remission of excise duty on goods destroyed in fire.
2. Requirement to reverse Cenvat credit on inputs contained in finished goods destroyed in fire.
3. Reversal of Cenvat credit on inputs destroyed as such.

Issue-wise Detailed Analysis:

1. Eligibility for Remission of Excise Duty on Goods Destroyed in Fire:

The appellant's factory experienced a fire on 26.01.2006, destroying inputs and finished goods. The appellant promptly informed the jurisdictional range office and completed necessary formalities, including filing for remission of Central Excise duty amounting to Rs. 60,78,682/-. The Commissioner of Central Excise, however, rejected the application, citing non-fulfillment of conditions in the Commissionerate's Trade Notice No. 16/2005. The tribunal remanded the matter, but the adjudicating authority again rejected the remission application.

The appellant argued that the destruction of goods in an unavoidable fire entitled them to remission under Rule 21 of the Central Excise Rules, 2002. It was emphasized that excise duty is levied on the manufacture of goods and collected at the time of removal. Since the goods were destroyed and not removed, the duty collection issue does not arise. The tribunal found that the goods were indeed destroyed in an unavoidable fire, and the insurance claim was processed and sanctioned, reinforcing the accident's legitimacy. Therefore, the appellant was entitled to remission of duty under Rule 21, and the duty demand on the destroyed finished goods was set aside.

2. Requirement to Reverse Cenvat Credit on Inputs Contained in Finished Goods Destroyed in Fire:

The appellant contested the demand for reversing Cenvat credit on inputs contained in the finished goods destroyed in the fire, amounting to Rs. 46,46,503/-. The tribunal noted that during the relevant period, there was no provision requiring the reversal of Cenvat credit for inputs contained in finished goods destroyed by unavoidable accidents like fire. The conditions for eligibility of Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2004, were satisfied, as the inputs were used in manufacturing the final product, received under duty-paying documents, and the duty was paid by the supplier.

The tribunal referred to several judgments, including Grasim Industries v. CCE (2007), CCE v. Intas Pharmaceuticals Limited (2013), and CCE v. Biopac India Corporation Ltd. (2010), which held that there was no requirement for reversing Cenvat credit on inputs used in finished goods destroyed by unavoidable accidents. The tribunal concluded that the appellant was not required to reverse the Cenvat credit on inputs contained in the finished goods destroyed in the fire.

3. Reversal of Cenvat Credit on Inputs Destroyed as Such:

The appellant did not contest the reversal of Cenvat credit on inputs destroyed as such, amounting to Rs. 19,28,129/-, which had already been reversed. The tribunal maintained this reversal as it was not disputed by the appellant.

Conclusion:

The tribunal modified the impugned order, allowing the appeal in favor of the appellant. The appellant was granted remission of duty for the goods destroyed in the fire, and the demand for reversing Cenvat credit on inputs contained in the finished goods destroyed was set aside. The reversal of Cenvat credit on inputs destroyed as such was maintained.

(Pronounced in the open court on 29.08.2024)

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