2013 (10) TMI 790 - AT - Central Excise

Benefit of Closing Balance of RG-23A and PLA post fire accident - goods lost in fire - reversal of credit on inputs not used in the manufacturing - Held that - The benefit of closing balance of RG-23A Part-II and PLA as on date of fire, the reasoning given seems to be very sketchy and unconvincing - The appellant were not able to put on record the closing balance of RG-23A Part-II and PLA as on 28.02.1996 - the best way to calculate the closing balance on 27.03.2006 would have been to take the balance of RG-23A Part-II and PLA as on 28.02.1996, and work out the closing balance, and could have been ascertained by the appellant from the monthly returns filed with the department - no exercise has been done by the appellant on this front - the balance as on 27.03.1996 i.e. on the day of fire as worked out by the appellant is unconvincing and the order to that extent which rejects such a claim by the appellant is upheld. Reversal of MODVAT Credit Held that - The amount of modvat credit that needs to be reversed on the bought out items - the first appellate authority has tried to work out actual modvat credit availed on the basis of average rate of duty - the calculation of duty on brought of the first appellate authority seems to be erroneous, if the value of the bought out items as worked out by the appellant is considered, then the calculation of modvat / cenvat credit on such items based upon percentage of modvat availed to the value of bought out items also needs to be accepted - Applying the law of average or applying the highest rate of duty in such a situation is inappropriate and incorrect, the subsequent amendment to modvat / cenvat credit rules indicate the liability of reversal of cenvat credit should be based upon the value or the proportion of the credit availed to the value there was no reason for rejecting the claim of the assessee as to the modvat credit that needs to be reversed on the bought out items Decided partly in favour of Assessee.

Summary

Issues:
1. Recovery of modvat credit on destroyed inputs.
2. Recovery of modvat credit on destroyed semi-finished goods.
3. Recovery of modvat credit on destroyed bought-out parts.
4. Appeal against demand notice and subsequent orders.
5. Calculation of modvat credit reversal amount.
6. Consideration of closing balance for reversal calculation.

Analysis:
1. The appeal was against a demand notice issued due to a fire accident destroying inputs, semi-finished goods, and bought-out parts. The appellant had availed modvat credit on inputs, semi-finished goods, and bought-out parts, which was deemed inadmissible post-destruction. The demand notice directed payment of the duty leviable on the destroyed inputs. The Commissioner (Appeals) set aside the notice, ordering a re-determination of duty. The Assistant Commissioner confirmed a demand on inputs and bought-out parts, which was upheld by the Commissioner (Appeals). The Cestat remitted the matter back for re-hearing due to an ex-parte order.

2. During the remand proceedings, the appellant contended that the amount reversible was lower than calculated. The First Appellate Authority upheld a part of the demand, including the reversal of modvat credit on bought-out items and unutilized balances in RG-23A Part-II and PLA. The appellant agreed to reverse modvat credit on raw materials but disputed the calculated amount on bought-out items.

3. The appellant argued for a lower amount of modvat credit reversal on bought-out items based on a pro-rata calculation from reconstructed records. The department defended the calculated amount based on an average duty rate. The Tribunal found the appellant's calculation more reasonable, considering the value of bought-out items and the percentage of modvat availed.

4. The Tribunal rejected the appellant's claim for adjustment based on the closing balance of RG-23A Part-II and PLA, as it was not convincingly supported by records. The Tribunal upheld the decision to reject this claim, as the appellant failed to provide adequate evidence for the closing balance calculation.

5. The Tribunal found the First Appellate Authority's calculation of modvat credit reversal on bought-out items erroneous and accepted the appellant's pro-rata calculation as more appropriate. The Tribunal set aside the excess demand confirmed by the First Appellate Authority and upheld the appellant's calculation for modvat credit reversal on bought-out items.

6. The appeal was disposed of in favor of the appellant regarding the modvat credit reversal on bought-out items, based on a more reasonable calculation method. The Tribunal provided relief accordingly, emphasizing the importance of accurate calculations and supporting evidence in such cases.

Conclusion:
The judgment addressed the issues of modvat credit recovery on destroyed inputs, semi-finished goods, and bought-out parts, highlighting the importance of accurate calculations and supporting evidence in determining the reversal amounts. The Tribunal upheld the appellant's contentions for a lower modvat credit reversal on bought-out items, emphasizing the need for a reasonable and well-supported calculation methodology.