2012 (9) TMI 536 - HC - Customs

100% EOU - loss of the capital goods/raw material/consumable - imported/procured indigenously duty free under the provisions of Notification No. 52/2003-Customs - Applicability of Explanation to Rule 6 of Central Excise - fire accident took place in the premises of the assessee Held that - Duty cannot be demanded on the goods which have been destroyed due to unavoidable accident/natural causes on the ground that they have not been used for the intended purpose - raw materials/capital goods which are in the premises of production would not be hit by the Explanation to Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 in favor of assessee

Summary

Issues:
Interpretation of Explanation to Rule 6 of Central Excise Rules, 2001 regarding destruction of goods during handling and storage in manufacturing premises.

Detailed Analysis:
The case involved an appeal by the revenue against a Tribunal order that raw materials/capital goods used in production and destroyed due to fire accident were not subject to duty recovery under Rule 6 of Central Excise Rules. The Tribunal held that the Explanation to Rule 6 did not apply in this case, leading to the revenue's appeal.

The assessee, an Export Oriented Unit, faced a fire accident resulting in the loss of goods. The revenue sought to recover duty foregone on imported raw materials/capital goods. The Tribunal's decision was based on the view that the destroyed goods were not used for the intended purpose and hence not subject to duty recovery under Rule 6.

The substantial questions of law considered included whether the Explanation to Rule 6 applied to the case, the treatment of goods as work-in-progress, and the scope of Rule 21 of Central Excise Rules, 2002. The revenue contended that the goods' destruction due to natural causes during handling triggered the Explanation to Rule 6.

The Explanation to Rule 6 clarified that goods lost or destroyed during transport or handling in manufacturing premises are deemed unused for the intended purpose. The Tribunal's conclusion was that duty recovery was not warranted for goods destroyed by unavoidable accidents/natural causes, as they were not used for the intended purpose, in line with Rule 6.

The High Court agreed with the Tribunal's interpretation, stating that the goods destroyed by fire accident were not subject to duty recovery under Rule 6. The Court rejected the revenue's argument that the goods fell under the Explanation due to destruction during handling, emphasizing that the Explanation did not apply in this scenario.

In conclusion, the High Court upheld the Tribunal's decision, finding no error in its reasoning. The substantial questions of law were answered in favor of the assessee, leading to the dismissal of the appeal by the revenue. The Court affirmed that the Explanation to Rule 6 was not applicable in the case of destroyed goods due to unavoidable accidents.