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2021 (12) TMI 238 - AT - Central ExciseRemission of duty - finished goods destroyed in the fire accident - inputs contained in the semi-finished goods destroyed in the fire accident - principles of natural justice - Rule 21 of Central Excise Rules, 2002 - HELD THAT - There is no dispute between the appellants and revenue, on the findings recorded by the Commissioner in para 19 of his order. Commissioner has recorded categorically that fire on the 02.04.2015 in the premises of the appellant was accidental and there was no negligence on the part of appellants. Since revenue has not challenged this finding of the Commissioner, by way of cross objections or cross appeal, this finding of Commissioner has become final. Also at the time of hearing, learned counsel appearing for the Appellant agreed that Commissioner was correct in his findings to the effect that for the finished goods on which remission of duty as per Rule 21 of Central Excise Rules, 2002 is allowed, the CENVAT Credit taken on the inputs contained in these finished goods need to be reversed as per Rule 3 (5C) of the CENVAT Credit Rules, 2004. Rejection of request for remission of duty - HELD THAT - Rule 21 do not limit its application only to the finished goods manufactured by the manufacturer, but would include within its ambit all those goods which have been lost or destroyed by natural causes or by unavoidable accident or are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal. Clearly the word goods is wide enough to include all the goods, whether finished good, raw material, packing material, semi-finished goods or the capital goods within its ambit. It is settle principle of interpretation, that interpretation should be made without adding or deleting the words used in the Rules. What is to be remitted is the duty required to be paid by the manufacturer on the goods he intends to remove from his premises. When the amount required to be paid in terms of Rule 3 (5) has been deemed to be the duty paid by the manufacturer removing the inputs as such, then claim made by such manufacturer in terms of Rule 21 for remission of these amounts cannot be brushed aside if the Commissioner is satisfied that these goods have been lost or destroyed by natural causes or by unavoidable accident or are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal. The process of production as envisaged in CENVAT Credit Scheme thus commences the moment the goods are received by the manufacturer in his manufacture, and CENVAT Credit Scheme acknowledges this fact as it allows the taking of credit and even utilization of the same instantaneously on receipt of inputs. All the inputs, packing materials whether in process of manufacture or intended to be used in the process of manufacture of the finished goods which were destroyed in fire accident and could not be used so are covered by the decision of the Hon ble Supreme Court, we are not in position to agree with the findings recorded by the Commissioner demanding the reversal of CENVAT Credit by invoking the provisions of Rule 3 (5B) of the CENVAT Credit Rules, 2004. The demand of interest and penalties imposed by the Commissioner also set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Remission of duty on finished goods destroyed in fire. 2. Reversal of CENVAT credit on inputs destroyed in fire. 3. Reversal of CENVAT credit on inputs contained in semi-finished goods destroyed in fire. 4. Demand of interest on confirmed demands. 5. Imposition of penalty. Issue-wise Analysis: 1. Remission of Duty on Finished Goods Destroyed in Fire: The Commissioner allowed remission of duty on finished goods valued at ?2,24,51,087 destroyed in the fire accident on the night of 02.04.2015, subject to the reversal of CENVAT credit on inputs contained in those finished goods as per Rule 3(5C) of the CENVAT Credit Rules, 2004. The Commissioner found that the fire was accidental and not due to negligence on the part of the appellant. This finding was not challenged by the revenue, making it final. The appellant agreed that remission of duty on finished goods necessitates the reversal of CENVAT credit on inputs contained in those goods. 2. Reversal of CENVAT Credit on Inputs Destroyed in Fire: The Commissioner confirmed the demand for reversal of CENVAT credit amounting to ?1,32,43,525 on inputs destroyed in the fire accident under Rule 14 of the CCR, 2004 read with Section 11A(10) of the CEA, 1944. The Commissioner invoked Rule 3(5B) of the CENVAT Credit Rules, 2004, which mandates reversal of credit if the value of inputs is written off in the books of accounts. However, the Tribunal found that Rule 3(5B) is applicable only when inputs are written off due to obsolescence, not when destroyed by fire. The Tribunal cited several decisions, including Indchem Electronics and Spectra Specialities, to support the view that CENVAT credit need not be reversed if inputs are destroyed in an accident. 3. Reversal of CENVAT Credit on Inputs Contained in Semi-Finished Goods Destroyed in Fire: The Commissioner confirmed the demand for reversal of CENVAT credit amounting to ?28,93,666 on inputs contained in semi-finished goods destroyed in the fire accident. The Commissioner held that semi-finished goods are not chargeable to duty as they are neither finished goods nor marketable. Therefore, CENVAT credit on inputs contained in semi-finished goods is not admissible. However, the Tribunal found that Rule 21 of the Central Excise Rules, 2002, which allows remission of duty on goods lost or destroyed by accident, applies to all goods, including raw materials, packing materials, and semi-finished goods. The Tribunal held that the Commissioner's interpretation limiting Rule 21 to finished goods was incorrect. 4. Demand of Interest on Confirmed Demands: The Commissioner demanded interest at the appropriate rate on the confirmed demands under the provisions of Section 11AA of the Central Excise Act, 1944. Since the Tribunal set aside the demands for reversal of CENVAT credit on inputs and semi-finished goods, the demand for interest was also set aside. 5. Imposition of Penalty: The Commissioner imposed a penalty of ?1,00,000 on the appellant under Section 11AC(1)(a) of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002. No penalty was imposed under Rule 15(1) of the CCR, 2004. The Tribunal, having set aside the demands for reversal of CENVAT credit, also set aside the penalty imposed by the Commissioner. Conclusion: The Tribunal allowed the appeal, setting aside the demands for reversal of CENVAT credit on inputs and semi-finished goods destroyed in the fire, along with the associated interest and penalty. The Tribunal found that Rule 21 of the Central Excise Rules, 2002, applies to all goods lost or destroyed by accident, and Rule 3(5B) of the CENVAT Credit Rules, 2004, does not apply to goods destroyed in a fire accident.
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