2022 (11) TMI 451 - AT - Central Excise

Remission of Excise duty - main contention of the adjudicating authority in rejecting the remission application is that fire was avoidable and due to not taking proper care by the appellant, the fire took place, therefore fire incident is not due to unavoidable circumstances - HELD THAT - The appellant have been regularly installing the firefighting equipment in their factory from 1987-2014. The fire took place in the factory on 07.01.2017. The contention of the adjudicating authority is that the appellant have not made any expenditure towards firefighting measures from 2014 onwards and that is the reason the fire has taken place. The said contention of the learned adjudicating authority cannot be agreed for the reason that once all the firefighting equipment have been installed in the factory i.e. upto January 2014, only in case of any need the firefighting equipment is required. Only because there is no expenditure in respect of firefighting measures after 2014, it cannot be said that the appellant have not equipped their factory with firefighting measures. There is absolutely no adverse remark in any of the various reports made in respect of the incident of fire in the factory. Be it of Inspector of Police, Fire Brigades, Deputy Director, Industrial Health and Safety Industry, Nagarpalika and from various reports, it is clear that the fire incident has taken place due to short circuit. The short circuit is clearly beyond the control of anyone and it is general that in majority of cases fire takes place due to short circuit and the same cannot be predicted by anyone in advance - the appellant have taken abundant precaution as regard firefighting measure and there is no lapse on the part of the appellant to hold that the fire incident could have been avoided. Valuation of goods - price for the purpose of insurance claim was enhanced from Rs. 139 per KG to Rs. 149.16 per KG - HELD THAT - From the calculation, it is absolutely clear that this enhancement does not include the excise duty. The enhancement is only due to inclusion of various expenses such as marketing and selling expenses, therefore, it is beyond doubt that the appellant have not included the amount of Central Excise duty. Therefore, on this count also the remission of duty cannot be varied or denied. The appellant is entitled for remission of duty in respect of final product lost or destroyed in fire incident. Needless to say that the appellant needs to reverse the cenvat credit in respect of the inputs, if any availed, contained in the final product in respect of which the remission is sought for - Appeal allowed.

Summary

Issues:
1. Rejection of remission application of excise duty for final product destroyed in fire.
2. Contention regarding the cause of fire and firefighting measures taken by the appellant.
3. Valuation of burnt goods and reimbursement of excise duty by Insurance Company.

Issue 1: Rejection of Remission Application:
The appeal challenges the Commissioner's order rejecting the remission application of excise duty amounting to Rs. 40,47,645 for the final product destroyed in a fire at the appellant's factory. The adjudicating authority based its rejection on the lack of proper firefighting measures taken by the appellant, citing the condition of electric wires and delayed installation of water guns post the fire incident. The authority invoked Rule 21 of Central Excise Rules, 2002, stating that remission can only be granted for losses due to natural causes or unavoidable incidents. Additionally, the authority argued against remission due to the appellant's recovery of excise duty element from the Insurance Company related to the valuation of burnt goods.

Issue 2: Cause of Fire and Firefighting Measures:
The appellant's counsel argued that the fire incident was beyond their control, emphasizing the precautionary firefighting measures taken by the appellant, as evidenced by the installation of firefighting equipment from 1987 to 2014. The counsel disputed the adjudicating authority's claim of lack of expenditure on firefighting post-2014, asserting that once equipment is installed, regular spending is unnecessary. Referring to reports attributing the fire to an electric short circuit, the counsel highlighted the appellant's adherence to safety standards as an ISO-certified company. The counsel also contested the authority's valuation claim, stating that the price increase was unrelated to excise duty, supported by various legal precedents.

Issue 3: Valuation of Burnt Goods and Insurance Reimbursement:
The authorized representative for the Revenue reiterated the findings of the impugned order, emphasizing the rejection of the remission application. The Member (Judicial) analyzed both parties' submissions and the records, disagreeing with the adjudicating authority's reasoning. The Member found that the fire was unavoidable, caused by a short circuit, and not due to any negligence on the appellant's part. The Member also concluded that the valuation increase for insurance claim did not include excise duty, supporting the appellant's entitlement to remission. Relying on legal judgments, the Member allowed the appeal, directing the appellant to reverse cenvat credit on inputs related to the remitted final product.

In conclusion, the Appellate Tribunal CESTAT Ahmedabad ruled in favor of the appellant, granting remission of duty for the final product lost in the fire incident, based on the findings that the fire was unavoidable, caused by a short circuit, and that the appellant had taken sufficient firefighting measures. The judgment emphasized that the valuation increase for insurance claim did not include excise duty, supporting the appellant's entitlement to remission.