2012 (12) TMI 264 - AT - Central Excise

Cenvat credit demand along with interest and penalty - Cenvat credit - inputs in process destroyed in fire Held that - If the WIP has reached the stage, when it can be considered as manufactured goods, in that case, the same treatment as applicable to finished goods - if the activity carried out on the WIP goods cannot be considered as amounting to manufacture, in that case, the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable - no dispute about the fact that the insurance claim received by the appellant in respect of loss of the work-in-process inputs does not include the element of Central Excise duty - Cenvat credit demand along with interest and penalty set aside

Summary

Issues: Recovery of Cenvat credit on inputs destroyed in a fire accident.

Analysis:
1. The appellant, engaged in manufacturing PU Rebonded Foam Sheets & mattresses, faced a fire accident destroying inputs in process with a duty of Rs. 15,66,597. The Department demanded recovery of Cenvat credit on the destroyed inputs, leading to a confirmation of the demand by the Additional Commissioner, imposing penalties. The Commissioner (Appeals) upheld this decision, prompting the appellant to file an appeal.

2. Initially listed for a stay application, the Tribunal decided to hear the appeal for final disposal due to the matter involving a short issue. The appellant argued that the Cenvat credit in question was availed on inputs destroyed in the fire, and the insurance claim received did not include the excise duty element. Citing a Tribunal judgment and Supreme Court dismissal of an SLP filed by the Department, the appellant contended that no Cenvat credit reversal was required.

3. The Department, represented by the ld. AR, relied on a circular stating that if the value of inputs on which Cenvat credit was taken is written off fully, the manufacturer must reverse the credit. The circular also addressed the liability to pay excise duty on manufactured goods, even if destroyed due to natural causes, and the requirement to reverse credit on inputs when duty is remitted.

4. After considering arguments from both sides and reviewing the record, the Tribunal found that the insurance claim did not include the excise duty element. The Tribunal held that the issue was settled by a previous Tribunal judgment, which the Supreme Court had upheld by dismissing the Department's SLP. Consequently, the Tribunal deemed the Department's circular contrary to the Tribunal's decision and ruled in favor of the appellant, setting aside the impugned order and allowing the appeal.