Cipy Polyurethanes Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Mumbai)
The decision of Hon’ble Apex Court in the case of BPL Display Devices Ltd [2004 (174) ELT 5 (SC)] clearly lays down that once the goods are procured for an intended use, then the benefit available and availed by them should not be denied just because for some reason they were not used so. We have seen certain decisions of Tribunal which lay distinction between inputs as such destroyed and those destroyed after being issued for production etc. Clearly these decisions cannot be said to be in line with the decision of Hon’ble Apex Court or the scheme of CENVAT credit. CENVAT credit is allowed to the manufacturer or the provider of output service on inputs received by him against the duty paying document prescribed immediately on the receipt of goods. Definitely no prudent businessman sets up the business just for taking the CENVAT credit and thereafter destroying those inputs by setting them on fire. He intends to use the goods to manufacture the finished goods. The process of production as envisaged in CENVAT Credit Scheme thus commences the moment the goods are received by the manufacturer in his manufactory, and CENVAT Credit Scheme acknowledges this fact as it allows the taking of credit and even utilization of the same instantaneously on receipt of inputs. All the inputs, packing materials whether in process of manufacture or intended to be used in the process of manufacture of the finished goods which were destroyed in fire accident and could not be used so are covered by the decision of the Hon’ble Supreme Court, we are not in position to agree with the findings recorded by the Commissioner demanding the reversal of CENVAT Credit by invoking the provisions of Rule 3 (5B) of the CENVAT Credit Rules, 2004.
FULL TEXT OF THE CESTAT MUMBAI JUDGEMENT
This appeal has been filed by the appellant against order in original No KLH-EXCUS-000-COM-0001-17-18 dated 19.05.2017 of the Commissioner Central Excise Kolhapur. By the impugned order Learned Commissioner has held as follows:
“i) I order remission of duty of Rs. 28,06,385/- under the provisions of Rule 21 of Central Excise Rules, 2002, on, the finished goods valued at Rs. 2,24,51,0871 destroyed in the fire accident of the night of 02.04.2015, subject to reversal of CENVAT credit on inputs contained in the said finished goods.
ii) I confirm the demand of Rs. 1,32,43,525 /- for reversal of CENVAT credit availed by the assessee on the inputs destroyed in the fire accident of the night of 02.04.2015, under Rule 14 of the CCR, 2004 read with Section 11A(10) of the CEA, 1944.
iii) I confirm the demand of Rs. 28,93,666/- for reversal of CENVAT credit availed by the assessee on the inputs contained in the semi-finished goods destroyed in the fire accident of the night of 02.04.2015 as per provisions of Rule 14 of the CCR, 2004 read with Section 11A(10) of the CEA, 1944..
iv) I confirm demand of interest at appropriate rate on the above confirmed demands under the provisions of Section 11AA of Central Excise Act, 1944.
v) I impose penalty of Rs. 1,00,000/- (Rupees One Lakh Only) on M/s Cipy Polyurethanes Pvt. Ltd., Shirwal under provisions of Section 11 AC(1)(a) of the Central Excise Act, 1944 read with Rule 25 of Central Excise Rules, 2002. No penalty is imposed under the provisions of Rule 15(1) of the CCR, 2004.”
2.0 Facts of the case stated in brief as recorded in the impugned order are as follows:
> Appellant is engaged in the manufacture of excisable goods viz. Paints & Varnishes of Tariff Item 32089019, Epoxy Resin/Polyurethane paint of Tariff Item 39073010, Thinner of Tariff Item 38140010, Glazier Puttee of Tariff Item 32141000 of the Central Excise Tariff Act, 1985. They are also availing CENVAT credit on the inputs / input services / capital goods used in or in relation to manufacture of these Final Products.
> A fire accident occurred at their manufacturing unit in the night of 02-04-2015. On their intimation, the Superintendent of Central Excise Shirwal Range visited the spot and drew a Panchnama of the facts on 03.04.2015. The Police Panchanama was also drawn on 05.04.2015 recording the damages occurred due to fire accident.
> Appellant claimed remission of Central Excise duty under Rule 21 of Central Excise Rules, 2002, vide their letter dated 28.03.2016. In the said letter they stated that they had not claimed Central Excise duty amount in their insurance claim filed with United India Insurance Company Ltd. They enclosed a copy of the Audit Report and Insurance Surveyor’s Report and sought remission of duty of Rs. 1,99,56,337/-.
> Central Excise duty is leviable on manufacturing of the goods in a factory of production. Thus, when the manufacturer has produced the goods, duty is recoverable under the provisions of Central Excise Act, 1944 and Rules made thereunder. The duty involvement in the Finished goods destroyed in fire accident was calculated at Rs. 28,06,385/-.
> Inputs / packing materials which were destroyed in fire accident had not been used in the manufacture of the final products and therefore, not covered under the definition of “input” provided in Rule 2(k) of CENVAT Credit Rules, 2004 (hereinafter referred to as CCR, 2004) and therefore the CENVAT credit on such inputs which are not otherwise available for production of finished goods is not admissible to the assessee. By not reversing the credit on in respect of the inputs and packing materials destroyed in fire they contravened the provisions of Rule 2(k), Rule 3 and Rule 4 of the CCR, 2004. The amount of CENVAT credit involved in the said inputs / raw materials destroyed in fire accident was calculated as Rs.1,61,37,191/-.
> Alleging that it is obligatory on part of Appellants to ensure that all precautions are taken to avoid any accident, which could cause loss to them as also to the revenue of the Government and the duty involved in goods destroyed in the fire accident has not been remitted by the Commissioner a Show Cause Notice dated 03.05.2016 asking them to show cause as to why-
i. duty amount of Rs.28,06,385/- on the excisable goods destroyed in fire accident of the night of 0204-2015 should not be recovered from them under the provisions of Section 11A (1) of the Central Excise Act, 1944;
ii. CENVAT credit of Rs.1,61,37,1917- (Rs. One Crore Sixty One lakhs Thirty Seven thousand One hundred Ninety One only) involved in inputs / raw materials lost / destroyed in fire accident of the night of 0204-2015 should not be recovered from them under the provisions Section 11A(1) of CEA, 1944 read with Rule 14 of the CCR, 2004.
iii. Proposals for recovery of interest under Section 11AA of the Central Excise Act, 1944 read with Rule 14 of CCR, 2004 and for imposition of penalty under the provisions of Section 11AC (1)(a) of Central Excise Act, 1944 read with Rules 25 of the CER, 2002 and Rule 15(1) of CCR, 2004, were also made in the Show Cause Notice.
> After following the principles of natural justice, Commissioner adjudicated the Show Cause Notice and also disposed of the application for remission filed under rule 21 of Central Excise Rule, 2002.
3.0 We have heard Shri Bharat Raichandani, Advocate for the Appellant and Shri S.H. Hattangadi, Assistant Commissioner, Authorized Representative for the revenue.
3.1 Arguing for the appellant learned counsel submits-
> Referring to para 19 of the order in original, that Commissioner has categorical held that the fire in the factory premises was not due to their negligence and has stated “I am therefore satisfied that the goods were lost due to an unavoidable accident and therefore I reject the charge of negligence/ mistake on the part of the assessee.” This finding of the Commissioner has not been challenged by way of any cross appeal or cross objections filed.
> Having held so he has allowed remission of duty in respect finished goods in terms of Rule 21 of Central Excise Rules, 2002, subject to Appellant reversing the CENVAT Credit on inputs contained said finished goods as per Rule 3 (5C) of the CENVAT Credit Rules, 2002. He is not challenging this part of the order, and agrees that in case were the remission has been allowed under Rule 21, CENVAT Credit of the inputs contained in those finished goods needs to be reversed.
> However he is in challenge to that part of the order of Commissioner, whereby he confirms the demand made in respect of the inputs/ packing materials destroyed in the same fire accident. Commissioner has also rejected their claim for remission of duty in respect of these goods.
> He submits that while the show cause notice was issued alleging that these inputs and packing material which were destroyed in the fire accident, and not used in or in relation to the manufacture of the finished goods, do not qualify to be inputs as per Rule 2 (k) of the CENVAT Credit Rules, 2002 and hence CENVAT Credit is not admissible, Commissioner has invoked the provisions of Rule 3 (5B), to demand the input credit taken by him in respect of these goods.
> Rule 3 (5B) of the CENVAT Credit Rules, 2004, is applicable only in case where the inputs on which the credit has been taken are written off in the books of account and not in case where the inputs/ packing materials were destroyed in fire.
> When the matter was earlier heard on 20.12.2018, he had submitted complete compilation of the decisions on the issue and he would place his reliance on those decisions, as listed below:
