2016 (6) TMI 443 - AT - Central Excise

Central excise duty on finished goods - cenvat credit wrongly availed on inputs and capital goods lost in fire accident - Held that - Regarding the duty demand/reversal of credit on capital goods, the impugned order finds that there is no legal provision during the material period for demanding duty on such damaged capital goods. These capital goods were still lying in the factory. As correctly held by the Commissioner (Appeals), the capital goods damaged in 2005 are bound by the provisions of Rule 5 A of the Cenvat Credit Rules, 2004 introduced w.e.f. 16.05.2005 and at the time of clearance of these goods, in whichever shape, they have to pay appropriate amount of duty. I find that the Appellate Authority is correct in concluding that duty on the finished goods as well as raw materials cannot be demanded merely because the appellants have not applied for the remission of duty. The finished goods and the raw materials were admittedly never cleared from the approved premises of the respondent. There is no legal provision to sustain recovery of duty only on the ground that remission application has not been filed in respect of goods lost in fire. The Tribunal in Mira Chemicals (2007 (3) TMI 653 - CESTAT, AHMEDABAD ) relying on the earlier decided cases held that when the goods were admittedly destroyed the fact that a proper application for remission of duty has not been made by the assessee, would not result in liability of excise duty. Also see Indchem Electronics (2002 (9) TMI 195 - CEGAT, CHENNAI ), Tribunal held that when the goods were destroyed due to fire accident and there is no allegation that there was any diversion of goods, there is no warrant to reverse the input-credit. The said decision has been upheld by the Hon ble Supreme Court reported in 2003 (4) TMI 556 - Supreme Court of India . There could be no clearance of destroyed products. As the destructions has been an admitted fact, there could be no duty liability on the goods, which are not cleared. - Decided against revenue

Summary

Issues:
1. Central excise duty demand on final products and reversal of credit on inputs and capital goods lost in fire accidents.

Analysis:
The case involves an appeal by the Revenue against an order of the Commissioner (Appeals-I), Indore, regarding central excise duty demand on final products and reversal of credit on inputs and capital goods lost in fire accidents. The respondent, engaged in chemical manufacturing, faced duty demands due to fire accidents in 2002 and 2005. The Original Authority confirmed duty and penalties, which were set aside by the Commissioner (Appeals) leading to the Revenue's appeal.

The Revenue contended that the respondent failed to follow Rule 21 procedures for remission of duty, justifying the duty recovery on finished goods and wrongly availed cenvat credit on inputs and capital goods lost in the fire accidents. On the other hand, the respondent argued that duty demand for damaged capital goods before May 16, 2005, lacked legal provisions. They emphasized that duty liability arises only upon clearance of damaged capital goods and that there is no basis for reversal of credit on inputs and stock in progress. The respondent also highlighted that duty liability on finished goods only arises upon clearance.

The Tribunal analyzed the impugned order and legal provisions. It found that duty demand or credit reversal on capital goods lacked legal basis before the introduction of Rule 5 A of the Cenvat Credit Rules in 2005. The Tribunal cited precedents like Mira Chemicals and Indchem Electronics to support the position that destruction of goods without remission application does not automatically lead to excise duty liability. The Tribunal emphasized that duty payment occurs at the time of clearance, and since the destroyed goods were not cleared, there was no duty liability.

In conclusion, the Tribunal rejected the Revenue's appeal, citing the absence of legal merit. It upheld the Commissioner (Appeals)'s decision and disposed of the cross objection. The judgment aligns with precedents and legal provisions, emphasizing the importance of clearance in determining duty liability for damaged goods.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, legal provisions considered, precedents cited, and the Tribunal's final decision, providing a comprehensive overview of the case's complexities and the reasoning behind the judgment.