By TIOL News Service

NEW DELHI, MAY 22, 2014: ON 20.3.2009 there was a fire in the factory premises of the appellant and in the process certain quantity of finished goods, stock in process and raw material got destroyed. The appellants intimated the jurisdictional R/s details of raw material and stock in process which were lying in stock and which perished.

Revenue was of the view that the appellants should have reversed the CENVAT credit taken on such inputs which were in stock and in process since such goods were not used in the manufacture of dutiable final products. A SCN was issued and the matter was adjudicated by the A.C. CEx. confirming the duty demand of Rs.1,84,581/-. An equivalent penalty was also imposed u/r 15 of the CCR, 2004.

Since the Commissioner (A) upheld this order the appellant is before the CESTAT.

The appellant relied upon the decisions in Sabero Organics Gujarat Ltd. 2009-TIOL-475-CESTAT-AHM and Grasim Industries 2007-TIOL-135-CESTAT-DEL-LB to submit that reversal of credit is not warranted.

The Revenue representative submitted that it is a settled law that appellants are not entitled to CENVAT credit in respect of inputs which have not been issued for the manufacturing process and which have got destroyed in fire. As regards the credit involved in respect of inputs issued for the manufacture and contained in 'stock in process', it is submitted that as the appellant did not take enough precaution to avoid the fire in which case they have to be held responsible for the fire accident and the credit should be directed to be reversed.

At the outset, the Bench remarked that the Revenue explanation that fire has occurred on account of negligence on the part of assessee cannot be appreciated inasmuch as nobody invites fire.

The CESTAT further observed that it is a settled law that the inputs which have already been issued from the inputs store section to be used in the manufacture of final product have to be treated as the inputs used in the manufacture and no CENVAT credit reversal is required to be asked for. Moreover, as regards the inputs lying in store, mere receipt of the inputs will not entitle the assessee to avail the credit, when such inputs are destroyed 'as such' in the store section itself, the bench added.
The Bench, therefore, concluded -

+ CENVAT credit of duty of Rs.70,578/- involved in 'in-process goods' is not to be reversed, whereas the CENVAT credit of Rs.1,14,003/- as availed in respect of goods lying in stock is required to be reversed. Accordingly a part of the demand is set aside whereas the other part is confirmed.

+ As regards penalty, this is not a case of malafide on the part of the assessee so as to invoke penal action. Accordingly, the entire penalty is set aside.
The appeal was disposed of.

In passing: Next stop - remission of duty on the finished goods destroyed in fire and reversal of CENVAT credit in respect of inputs contained therein!

(See 2014-TIOL-824-CESTAT-DEL)