By Swamy Associates

PHOENIX, the mythical bird, is known for its resurgence from its ashes. In the past, we have witnessed several instances, wherein the Board had tried to resurrect the dead and unsettle many well-settled issues, thus becoming a reputed phoenix sanctuary. (Ref: Our piece titled as “CREATION AFTER CREMATION”, wherein we lambasted the Board’s Circular on the “Cum duty price” issue). Now by a recent Circular, the Board has resurrected another phoenix, whereby a well-settled legal position is unnecessarily disturbed, to feed the ugly claws of perpetual litigation.

Reference is drawn to the Board’s Circular 800/33/2004-CX Dated 1/10/2004. In the said circular, the Board has clarified that the Cenvat credit on the inputs, contained in the finished goods which are damaged or destroyed and upon which the Excise duty is remitted, needs to be reversed. The Circular also withdraws its earlier Circular No. 650/41/2002 –CX dated 7/8/2002, wherein the Board had accepted the decision of the Tribunal in the cases of M/s Inasla Ltd vs CCE, New Delhi {1997 (90) ELT 497} and M/s Kirloskar Electric Company Ltd vs CCE, Bangalore {2002 (141) ELT 224} and allowed the Cenvat credit on inputs contained on the finished goods on which the duty remission has been granted. The present Circular comes in the light of the decision of the Tribunal in the case of M/s Mafatlal Industries Limited vs CCE, Ahmedabad {2003 (154) ELT 543}. In the said decision, the Tribunal has held that the Cenvat credits on the inputs are not allowed if the duty on final products are remitted.

Reference is also drawn to the decision of the Tribunal in the cases of

1. M/s Win Medicare Ltd vs CCE, Meerut {2002 (141) ELT 690}
2. M/s Wipro Biomed Ltd vs CCE, Meerut {2002 (149) ELT 698}
3. M/s EID Parry (I) Ltd vs CCE, Chennai { 2003 (154) ELT 175}

In all the above cases, it has been categorically held that the Cenvat credit shall be allowed on the inputs, which are contained in the final products and which are either damaged or destroyed, upon which duty remission has been granted. All the above judgments were delivered on a powerful and considerate reasoning that, in such cases, the inputs are put to the intended purpose of manufacture and the remission on final products cannot be equated with a general exemption.

Suddenly the Board has picked up one isolated decision from the hay stack and has issued this present Circular, thus disregarding the plethora of decisions on this subject. It is also worthwhile to mention that the above said Mafatlal decision is rendered on 12/3/2003. There are other judgments, which are rendered subsequent to the same, supporting the earlier stance, viz.,

1. M/s Golden Polymex India Limited vs CCE, Patna rendered on 25/4/2003. { 2003(160) ELT 545}
2. M/s Electrolux Kelvinator Limited vs CCE, Jaipur – I rendered on 10/9/2003. {2004 (163) ELT 395}

Last but not the least, reference is drawn to the decision of the Tribunal in the case of CCE, Chennai III vs M/s Indchem Electronics {2003 (151) ELT 393}, wherein the Tribunal has allowed the remission of duty on the inputs themselves which were destroyed in fire. The said decision is also upheld by the Supreme Court as reported in {2003 (157) ELT A206 (SC)}. When the Cenvat credit is allowed on the inputs which are destroyed on fire, based on the reasoning that they had been issued for production, the reasoning is further sound and reinforced, in allowing the Cenvat credit on them, when such inputs are contained on the final products which are destroyed and remission is granted.

Instead of appealing against the catena of decisions in which the Cenvat credit is allowed on inputs contained on the finished goods on which the duty is remitted but adopting a lone decision to take a U- turn on a settled principle and reversing its own circular is nothing but a selective and utter judicial disregard, which needs unified protest from all quarters. We vehemently condemn the same with utmost concern and request the Board to revisit the issue and immediately withdraw the present Circular.

Before parting….

Apart from denying the Cenvat credit on inputs, the present Circular also proceeds to instruct its field formations to recover the interest on such Cenvat credit, which reminds us of our school time story “ The King Midas!”…