Hindalco Industries Limited Vs Commissioner of Central Excise (CESTAT Kolkata)
Summary: The Customs, Excise & Service Tax Appellate Tribunal, Kolkata Regional Bench, allowed the appeal filed by M/s Hindalco Industries Limited against the order of the Commissioner of Central Excise, Customs & Service Tax, Bhubaneswar II, which denied CENVAT credit on inputs contained in work-in-process destroyed because of a power outage during manufacture.
The appellant was engaged in manufacturing aluminium and carbon electrodes. On 28.09.2008, a flash-over occurred in the power transformer at its premises and a grid under-voltage simultaneously caused all TGs to trip, resulting in a station outage at all rectifier stations. The power failure continued for more than six hours, causing 61 pots in Line II and III to fail. The bath and molten metal consequently froze, resulting in substantial production loss as well as additional start-up, repair and maintenance costs.
Following the outage, the appellant lodged an insurance claim on 09.03.2009. The claim was stated to be net of the CENVAT credit component and the revenue from items disposed of as scrap on payment of duty. The Superintendent (Audit), by letter dated 24.11.2009, sought details concerning the sanctioned portion of the insurance claim, which the appellant supplied.
A show-cause notice dated 27.12.2010 was thereafter issued seeking recovery of CENVAT credit availed from September 2008 to May 2009 on inputs destroyed due to the electricity failure, referring to Circular No. 907/27/2009-CX dated 07.12.2009. The appellant contested the notice, but the demand was confirmed on the ground that the CENVAT credit had not been used in the manufacture of the final product. The appellant therefore approached the Tribunal.
Before the Tribunal, the appellant contended that credit on inputs used in manufacture could not be denied merely because the inputs were destroyed through power failure during the manufacturing process. Reliance was placed on decisions including CCE, Chennai III Vs. Indchem Electronics, VFC Industries Private Limited Vs. CCE & ST, Vadodara II, CCE, Chandigarh Vs. Chandigarh Petro Foam Private Limited, Commissioner of CE & ST, Rohtak Vs. Park Nonwoven Private Limited and Secure Meters Limited, Unit I Vs. CCE & ST, Chandigarh I. The appellant further submitted that part of the inputs had been procured after the power outage and that credit on those inputs could not be denied. It was also argued that the contention that the goods did not qualify as inputs under the CENVAT Credit Rules, 2004 had been raised only while passing the impugned order, and that the extended period of limitation was not invokable.
The Tribunal identified the sole issue as whether duty paid on inputs which had gone into the manufacturing process, were destroyed because of electricity failure and were subsequently cleared as scrap on payment of duty could be denied CENVAT credit. The Tribunal referred to the consistent view in earlier decisions that where inputs had been issued for manufacture and were destroyed during the course of manufacture, CENVAT credit could not be denied.
The Tribunal particularly relied upon the decision of the Punjab and Haryana High Court in Chandigarh Petro Foam Private Limited, where the High Court had considered the destruction of goods in a fire accident and relied upon the Larger Bench decision in Grasim Industries v. CCE and the Supreme Court decision in Commissioner v. Indchem Electronics. The High Court found no substantive question of law warranting admission of the appeal.
The Tribunal also reproduced the relevant reasoning from Indchem Electronics. In that case, the destruction of goods by fire was undisputed and the department had not contested that the inputs had actually been issued before destruction. The Tribunal in Indchem Electronics had concluded that there was no warrant for reversal of the input credit. The order was subsequently affirmed by the Hon’ble Supreme Court.
On the basis of these authorities, the Tribunal held that CENVAT credit on inputs destroyed due to the power outage could not be denied to the appellant. The impugned order was accordingly set aside and the appeal was allowed.
Cases Discussed
- CCE, Chennai III Vs. Indchem Electronics : 2003 (151) ELT 393 (Tri.-Chennai), affirmed by the Hon’ble Supreme Court in 2003 (157) ELT A-206 (SC).
- VFC Industries Private Limited Vs. CCE & ST, Vadodara II : 2017 (352) ELT 507 (Tri.-Ahmd.).
- CCE, Chandigarh Vs. Chandigarh Petro Foam Private Limited : 2017 (350) ELT 246 (P & H).
- Commissioner of CE & ST, Rohtak Vs. Park Nonwoven Private Limited : 2015 (323) ELT 634 (Tri.-Del.).
- Secure Meters Limited, Unit I Vs. CCE & ST, Chandigarh I : 2016 (11) TMI 633 – CESTAT Chandigarh.
- Grasim Industries v. CCE, 2007 (78) RLT 476 = 2007 (208) E.L.T. 336 (Tribunal-LB).
- CCE v. Foods, Fats and Fertilizers Ltd., 1989 (41) E.L.T. 277 (T).
- Larsen & Toubro Ltd. v. Assistant Collector of Central Excise, 1992 (61) E.L.T. 510 (Collr. App.).
- Prem Pharmaceuticals v. CCE, Indore, 1996 (88) E.L.T. 278.
- CCE, Aurangabad v. Glindia Ltd., 1996 (87) E.L.T. 73 (T).
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant is in appeal against the impugned order wherein cenvat credit is denied to the appellant on inputs contained in the work in process, which got destroyed on account of power outage leading to disrupting in the pot lines during the process of manufacture.
2. The facts of the case are that the appellants are engaged in the manufacture of aluminium and carbon electrodes.
2.1 On 28.09.2008, a flash-over took place in the power transformer at the premises of the appellant and at the same time, grid under-voltage also occurred due to which, all TGs tripped causing station outage at all rectifier stations. Due to such power failure for more than 6 hours, 61 Pot in Line II and III failed causing the bath and molten metal to freeze. This cause huge production loss to the appellant and additional start up and repair and maintenance cost.
2.2 On occurrence of such outage, the appellant lodged an insurance claim dated 09.03.2009, which was net of the cenvat credit portion and the Revenue from items disposed off as scrap on payment of duty.
2.3 Such outage occurred shortly after occurrence, the Superintendent (Audit) vide letter dated 24.11.2009, directed the appellant to provide the details of part of insurance claim, which was sanctioned. The appellant provided the required details.
2.4 Thereafter, a show-cause notice was issued to the appellant on 27.12.2010 for recovery of cenvat credit availed from September, 2008 to May, 2009 on the inputs so destroyed due to failure of electricity and as per Circular dated 907/27/2009-CX dated 07.12.2009.
2.5 The appellant contested the show-cause notice, but the demand was confirmed on account of cenvat credit were not used in manufacture of final product.
2.6 Against such order, the appellant is before us.
3. The ld.Counsel for the appellant submits that the cenvat credit of inputs used for manufacture, destroyed through power failure at the time of manufacture, cannot be denied. To support his contention, he relied on the following decisions :
(a) CCE, Chennai III Vs. Indchem Electronics : 2003 (151) ELT 393 (Tri.-Chennai), which has been affirmed by the Hon’ble Apex Court in 2003 (157) ELT A-206 (SC) ;
(b) VFC Industries Private Limited Vs. CCE & ST, Vadodara II : 2017 (352) ELT 507 (Tri.-Ahmd.) ;
(c) CCE, Chandigarh Vs. Chandigarh Petro Foam Private Limited : 2017 (350) ELT 246 (P & H) ;
(d) Commissioner of CE & ST,Rohtak Vs. Park Nonwoven Private Limited : 2015 (323) ELT 634 (Tri.-Del.) ;
(e) Secure Meters Limited, Unit I Vs. CCE & ST, Chandigarh I : 2016 (11) TMI 633 – CESTAT Chandigarh.
3.1 The appellants are also stated that part of the inputs whose cenvat credit is denied, were procured after the power outage, therefore, on the said input, cenvat credit cannot be denied.
3.2 It is his submission that the inputs do not qualify as an input as per Cenvat Credit Rules, 2004, was a ground taken only while issuing the impugned order.
3.3 It is also submitted that the extended period of limitation is not invokable.
4. The ld.A.R. for the Revenue reiterated the findings of the impugned order.
5. Heard both the parties and considered the submissions.
6. The sole issue is to be decided whether the duty paid on input gone in manufacturing process destroyed due to electricity failure which has been cleared as scrap by the appellant on payment of duty, the cenvat credit can be denied or not ?
7. The said issue has been dealt by the various decisions of this Tribunal and this Tribunal has held that when the input has been issued for manufacture and during the course of manufacture, if input destroyed, the cenvat credit cannot be denied. The said view has been affirmed by the Hon’ble Punjab and Haryana High Court in the case of Chandigarh Petro Foam Private Limited (supra), wherein the Hon’ble High Court has observed as under :
“The only issue raised in the instant appeal filed under Section 35G of the Central Excise Act, 1944 is whether the assessee would be entitled to Modvat/Cenvat credit in respect of the goods destroyed in fire accident. The Tribunal has placed reliance on a Larger Bench judgment of the Tribunal rendered in the case of Grasim Industries v. CCE, 2007 (78) RLT 476 = 2007 (208) E.L.T. 336 (Tribunal-LB) holding that the issue has been decided against the Revenue and in favour of the dealer. Likewise, the Commissioner has placed reliance on a short order passed by Hon’ble the Supreme Court in the case of Commissioner v. Indchem. Electronic – 2003 (157) E.L.T. A206 (S.C.) where it has been noticed that Modvat/Cenvat credit is not deniable on inputs destroyed in fire accident when the fact that inputs were actually issued and thereafter destroyed in fire accident has been admitted by the department.
2. On the basis of the afore-mentioned findings as well as clear position of law, we are of the view that no substantive question of law warranting admission of appeal would arise and, therefore, the same is accordingly dismissed.”
8. Further, in the case of Indchem Electronics (supra), the Tribunal has observed as under :
“5. We have carefully considered the rival submissions and gone through the case records. We observe that in this case, the fact of destroying the goods by fire accident is not disputed by the department. The contention of the department is that Rule 49 is not applicable in this case because the goods destroyed were not finished goods kept in a store room or in approved place. We find that the proviso to Rule 49 lays down that the manufacturer is required to pay duty on any goods which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage. In the present case as already noted, there was no dispute that the goods were destroyed by fire. The survey report furnished by the surveyor appointed by the Insurance Company which is reproduced in the order in appeal clearly stated that the goods in the form of assembled and semi assembled circuit boards and electronics components viz. ICs Diodes, Contactors, relays etc. totally valued at Rs. 1,46,79,988.96 have been destroyed by fire accident and the damaged PCBs and electronic components do not have any commercial value and are useless. Therefore, the plea of the Revenue that Rule 49 is not applicable cannot be countenanced. The Revenue has also contended that the reliance by the Commissioner (Appeals)’ on the CEGAT’s decision is not correct as those decisions are not relevant to the facts of the present case since fire accidents were not involved in those case. We have no hesitation to record that the Revenue has taken this plea without going into the case laws relied upon by the Commissioner (Appeals). They should have gone through the case laws before taking such a ground. We observe that the Commissioner (Appeals) has rightly applied the ratio of the following decisions in this case :
(a) CCE v. Foods, Fats and Fertilizers Ltd. reported in 1989 (41) E.L.T. 277 (T) wherein it was held that exemption under Notification No. 118/75-C.E. is admissible when goods removed from place of production and intended for use in the manner specified even though lost due to destruction by fire.
(b) Larsen & Toubro Ltd. v. Assistant Collector of Central Excise reported in 1992 (61) E.L.T. 510 (Collr. App.) wherein it was held that Modvat credit cannot be reversed in respect of inputs actually issued and damaged in fire accident while in manufacturing process, whereas Modvat credit to be reversed only in respect of inputs not issued for manufacture but got damaged in fire, in terms of Rule 57A.
(c) Prem Pharmaceuticals v. CCE, Indore reported in 1996 (88) E.L.T. 278 wherein it was held that in respect of credit taken on bottles broken during handling, the demand for duty on such bottles is not justified, in terms of Rule 57D. It was also held therein that credit is not to be denied in terms of Rule 57D subject to the bottles being destroyed as per procedure under Rule 57F of the CE Rules.
(d) In the case of CCE, Aurangabad v. Glindia Ltd. reported in 1996 (87) E.L.T. 73 (T) wherein it was held that Modvat credit on broken glass bottles not to be denied in terms of Rule 57D.
6. As we have already observed, in this case, the fact regarding fire accident and goods having been destroyed as a result there of is not disputed. The department has also not contested the claim of the assessee that the inputs were destroyed after the inputs were actually issued. Further, there was also no allegation that there was any diversion of the goods elsewhere. In view of our discussion above, we are of the considered opinion that the Commissioner (Appeals) has come to a correct conclusion after analysing the evidence on record, that there was no warrant to reverse the input credit taken in this case and we do not find any reason to interfere with the order passed by the lower appellate authority. Accordingly, the Revenue appeal is dismissed.”
The above case has been affirmed by the Hon’ble Apex Court.
9. Therefore, we hold that the cenvat credit on input, which has been destroyed due to power outage, cannot be denied to the appellant.
10. In view of this, we set aside the impugned order allow the appeal.
