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2017 (11) TMI 767 - AT - Central ExciseReversal of CENVAT credit - inputs used in the manufacture of semi finished foods (WIP Goods) destroyed in fire along with the inputs, lying on the shop floor of the factory - incidence of fire in the factory premises of the appellant - Held that - The contention of the Revenue that the appellant is required to reverse the credit on the inputs contained in semi- finished goods in accordance with Rule 3(5B) of Cenvat Credit Rules, 2004, in my view, is an erroneous approach and misreading of sub Rule 5B of Cenvat Credit Rules, 2004, inasmuch as, the said sub Rule is directed when the inputs or capital goods before being put to use is written off from the books of accounts, whereas in the present case, the inputs after being used and contained in the semi finished goods destroyed in fire during the course of its journey to the final stage, hence cannot be equated to the activity of written off of the credit on said inputs - appeal allowed - decided in favor of appellant.
Issues:
1. Reversal of cenvat credit on inputs destroyed in fire. 2. Applicability of Rule 3(5B) of the Cenvat Credit Rules. 3. Compensation received from the Insurance Company. 4. Barred by limitation. Analysis: Issue 1: Reversal of cenvat credit on inputs destroyed in fire The case involved an appeal against the order passed by the Commissioner (Appeals-I) regarding the reversal of cenvat credit on inputs destroyed in a fire incident. The appellant had already reversed credit on some inputs but resisted reversing credit on inputs used in the work in progress goods (WIP Goods) destroyed in fire. The Tribunal noted that the inputs were used in the semi-finished goods destroyed in fire, not in the finished goods. The appellant argued that similar demands in the past had been set aside by the Commissioner (Appeals) and that no remission application under Rule 21 of the Central Excise Rules was necessary for WIP goods. The Tribunal agreed with the appellant's contention, stating that the provisions of Rule 3(5B) of the Cenvat Credit Rules could not be applied to the present case as the inputs were destroyed before reaching the final stage. The Tribunal emphasized that the rule regarding reversal of credit on inputs written off before use did not apply in this scenario. Issue 2: Applicability of Rule 3(5B) of the Cenvat Credit Rules The Revenue contended that Rule 3(5B) of the Cenvat Credit Rules mandated the reversal of cenvat credit on inputs that were part of the destroyed WIP goods. However, the Tribunal disagreed with this interpretation. It clarified that Rule 3(5B) applied when inputs or capital goods were written off before use, which was not the case with the inputs used in the semi-finished goods destroyed in the fire. The Tribunal highlighted that the rule was misinterpreted by the Revenue, and the demand for reversal of credit on such inputs was deemed unsustainable. Issue 3: Compensation received from the Insurance Company The appellant had received compensation from the Insurance Company for the destroyed WIP goods, which included the excise duty element on the inputs. Despite this, both authorities had concluded that the appellant was liable to reverse the cenvat credit. The Tribunal referred to a High Court judgment emphasizing that the Insurance Company's compensation did not render the cenvat credit irregular. The Tribunal held that the department had no grounds to demand the reversal of credit based on the compensation received from the Insurance Company. Issue 4: Barred by limitation The appellant contended that the demand was barred by limitation. The Tribunal, after considering the arguments and precedents, found merit in the appellant's contentions and set aside the impugned order. It allowed the appeal and provided consequential relief as per the law. In conclusion, the Tribunal ruled in favor of the appellant, highlighting that the demand for reversal of cenvat credit on inputs used in the destroyed WIP goods was not sustainable under Rule 3(5B) of the Cenvat Credit Rules. The judgment emphasized the correct interpretation of the rules and the legal principles governing the situation, ultimately granting relief to the appellant.
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