By TIOL News Service

MUMBAI, APR 04, 2013: EARLY in the morning of 10.09.2000, a fire accident took place in appellant's Butyl Phenol Plant. In the fire, in-process material lying in the plant of the factory and the capital goods were destroyed/damaged.

The next day, the appellant informed the department that the capital goods on which CENVAT credit of Rs.55,26,242/- was availed and the “inputs” put in process of manufacturing of final product on which CENVAT credit of Rs, 14,74,796/- was availed have been damaged and destroyed in fire.

Almost a year later, a SCN was issued by the jurisdictional authorities asking the appellant to reverse the total CENVAT credit availed by them on capital goods and inputs used in-process of manufacturing that were lost/damaged in the fire.

The adjudicating authority admitted the fact that the capital goods were used by the appellant and the inputs had also entered into manufacturing stream but denied credit on the ground that as the appellant has claimed insurance for the loss of inputs/in-process material/capital goods from the Insurance Company, therefore, credit cannot be allowed.

The Commissioner (Appeals) also denied the CENVAT credit citing the Tribunal decision in Monica Electronics (2002-TIOL-509-CESTAT-DEL)

The appellant is before the CESTAT and submits that credit is not deniable since –

+ it is not disputed that the capital goods were in use since the year 1998 and that the inputs had entered the manufacturing stream and hence credit thereon is admissible as per Board's Circular No. 66/88-CX-6 dated 06.09.1988;

+ a certificate from the National Insurance Company certifying that the Insurance Company has not considered the claim of the MODVAT/CENVAT credit of duty paid while entertaining their claim for damaged capital/input/work in-process was also produced before the Commissioner (Appeals) by the appellant, however, the same was not considered.

+ decision of the Tribunal in Monica Electronics is not applicable to the facts of the case.

The Revenue representative supported the order of the lower authorities.

The Bench observed –

“7. The facts are not in dispute. The adjudicating authority has denied the credit on the premise that the appellant has filed insurance claim for the damaged goods/capital goods, therefore, credit is not admissible. But the appellant has been able to prove through a certificate issued by the National Insurance Company that they have not entertained the Modvat claim filed by the appellant. Therefore, the ground on which the adjudicating authority denying the credit, is not sustainable. The first appellate authority denied the CENVAT credit by relying on the decision of Monica Electronics (supra). The facts in this case are distinguishable from the facts of the case of Monica Electronics (supra), inputs were damaged prior to issuance for manufacture. It means that ‘inputs' were not gone into manufacturing process, therefore, credit is inadmissible but in this case, it is not in dispute that ‘inputs' have gone in the process of manufacturing and capital goods were also in use therefore, credit cannot be denied. In the case of CCE vs Indichem Electronics -2003 (151) ELT 393 (T) and Motor Industries Co Ltd. vs CCE- (2004-TIOL-122-CESTAT-BANG) wherein this Tribunal has held that when the capital goods/inputs were in use for manufacturing of final products and lost during the fire accident, credit cannot be denied. Relying on the above decision, we set aside the impugned order and allow the appeals with consequential relief, if any.”

In passing: What happened to the finished goods destroyed or were there none?

(See 2013-TIOL-551-CESTAT-MUM)