2015 (1) TMI 171 - AT - Central Excise

CENVAT Credit - Loss of goods due to fire - Held that - There is no dispute about the fire accident in the appellants factory. The Revenue explanation that fire has occurred on account of negligence on the part of assessee cannot be appreciated inasmuch as nobody invites fire. Inputs which have already been issued from the inputs store section, to be used in the manufacture of final product, have to be treated as the inputs used in the manufacture and no Cenvat credit reversal is required to be asked for. As regards the inputs lying in store, the Tribunal in the case of Panacea Biotech Ltd. 2012 (9) TMI 870 - CESTAT NEW DELHI has taken into consideration the entire case law and has held that mere receipt of the inputs will not entitle the assessee to avail the credit, when such inputs are destroyed as such in the store section itself. Cenvat credit of duty of ₹ 70,578/- involved is in-process goods is not to be reversed, whereas the Cenvat credit of ₹ 1,14,003/- as availed in respect of goods lying in stock is required to be reversed. Accordingly a part of the demand is set aside whereas the other part is confirmed - However, penalty is set aside - Decided partly in favour of assesse.

Summary

Issues:
1. Reversal of Cenvat credit on inputs destroyed in a fire incident.
2. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Reversal of Cenvat credit on inputs destroyed in a fire incident
The appellants, as manufacturers of excisable goods, availed Cenvat credit on duty paid inputs under the Cenvat Credit Scheme. A fire incident on 20-3-2009 destroyed finished goods, stock in process, and raw materials in the factory premises. The Revenue contended that the appellants should reverse the Cenvat credit on inputs in stock and in process as these were not used in manufacturing dutiable final products as required by the Cenvat Credit Rules. The Assistant Commissioner of Customs issued a show cause notice demanding duty and imposed a penalty under Rule 15 of the Cenvat Credit Rules, 2004. The appellants appealed to the Commissioner (Appeals) and subsequently to the Tribunal, arguing that previous tribunal decisions supported their position that no reversal was necessary. The Revenue argued that settled law dictated that Cenvat credit is not allowed on inputs not used in the manufacturing process. The Tribunal found that while credits on in-process goods need not be reversed, credits on goods in stock must be reversed, citing relevant case law. The Tribunal upheld part of the demand and set aside the penalty, noting the absence of mala fide intent on the part of the appellants.

Issue 2: Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004
The appellants contended that there was no mens rea on their part regarding the Cenvat credit issue due to reliance on previous tribunal decisions. The Revenue argued that the appellants should be held responsible for the fire incident due to lack of precaution, justifying the reversal of credit. However, the Tribunal found that the fire was an accident and not due to negligence on the part of the appellants. Considering the absence of mala fide intent, the Tribunal set aside the penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004.

In conclusion, the Tribunal ruled that the Cenvat credit on in-process goods need not be reversed, but the credit on goods in stock must be reversed. The penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004 was set aside due to the lack of mala fide intent on the part of the appellants.