Comfort Polymers Pvt. Ltd. Vs CCE- Jammu (CESTAT Chandigarh)
In the case of Comfort Polymers Pvt. Ltd. Vs. CCE- Jammu, the CESTAT Chandigarh ruled in favor of the taxpayer. The dispute revolved around the applicability of Rule 3(5B) and 3(5C) of the Cenvat Credit Rules, 2004, regarding the reversal of CENVAT credit on destroyed goods during the manufacturing process.
Analysis: The taxpayer faced two issues: one concerning the credit availed on inputs used for further manufacturing, and the other regarding material in process/work in progress destroyed in a fire accident. The authorities relied on Rule 3(5B) and 3(5C) to confirm the demand, seeking the reversal of CENVAT credit.
However, the Tribunal referred to various precedents and judgments to clarify the applicability of these rules. Notably, the case of M/s CIPY Polyurethanes Pvt. Ltd. vs. CCE, Kohlapur, held that if inputs are issued for further manufacturing, and goods are destroyed during the manufacturing process, no reversal of CENVAT credit is required. Similarly, the case of SMG International confirmed that Rule 3(5B) is applicable only when inputs or capital goods become obsolete and are written off.
Based on these precedents, the CESTAT Chandigarh ruled in favor of Comfort Polymers, stating that Rule 3(5B) and 3(5C) were not applicable in this case. The demand for reversal of CENVAT credit on destroyed goods was deemed unsustainable and set aside.
Conclusion: The ruling in favor of Comfort Polymers Pvt. Ltd. clarifies the applicability of Rule 3(5B) and 3(5C) in cases of destroyed goods during the manufacturing process. The decision aligns with previous judgments and provides relief to the taxpayer by allowing the CENVAT credit on the destroyed goods.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against the impugned order dated 05.08.2010 whereby the Commissioner (Appeals) has confirmed the demand alongwith interest and penalties.
2. Briefly the facts of the case are that the appellants are manufacturers of water storage tanks and EPE Foam Sheets chargeable to central excise duty under Chapter 39 of the Central Excise Tariff. They availed cenvat credit of duty paid on inputs used in or in relation to the manufacture of their final products. The appellants are also availing of exemption under Notification No.56/2002-CE available to the units located in certain notified areas in the state of Jammu & Kashmir, which have commenced production on or after 14.06.2002. On 19.11.2007, there was a fire in the appellant’s factory in which while there was no loss of the finished goods, the inputs in stock in respect of which cenvat credit had been taken and inputs in process in respect of which also cenvat credit had been taken, were lost. The appellant lodged a FIR about the fire and reported fire accident to the jurisdictional central excise officers vide letter dated 20.11.2007. While the cenvat credit taken in respect of inputs in stock which were lost in fire accident was reversed, the appellant did not reverse the cenvat credit amounting to Rs.24,76,855/-, which has been availed in respect of inputs in process and which had also been lost in fire. The department also found that the cenvat credit in respect of the inputs lost in fire had been reversed by making a debit entry in Cenvat Credit Account in February, 2008, which according to the department, they were not allowed, as they were availing of the duty exemption under Notification No.56/2002-CE. According to the Department, the appellants were required to use the cenvat credit available in a month for the payment of duty only, so that they can get refund of the duty, which after utilization of the cenvat credit, was paid in cash. The department, therefore, on this ground demanded duty of Rs.4,34,573/- in respect of the month of February, 2008 on the ground that the appellant while reversing the cenvat credit of this amount have paid the excess amount in cash and obtained the refund, which was not due to them. It is in view of the above facts that the show cause notice dated 12.11.2008 was issued to the appellants for –
(a) Recovery of Cenvat credit amounting to Rs.24,76,855/- along with interest in respect of the cenvated inputs in process, which were lost in fire and along with interest on it at the applicable rate and appropriation of an amount of Rs.47,626/- already paid towards this demand;
(b) Recovery of excess cash refund of Rs.4,34,573/- under Notification No.56/2002-CE dated 14.11.2002 during month of Feb., 2008 along with interest at the applicable rate under Section 11 AB ibid and;
(c) Imposition of penalty on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Rule 27 of the Central Excise Rules, 2002.
3. The above show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 26.02.2010 by which the above mentioned demands of Cenvat credit and duty were confirmed along with interest and besides this while penalty of Rs.24,76,855/-was imposed on the appellant under Rule 15 of the Cenvat Credit Rules, 2004, penalty of Rs. 5,000/- was imposed on them under Rule 27 of the Central Excise Rules, 2002.
4. Aggrieved by the Order-in-Original, the appellant filed appeal before the Commissioner (Appeals) who upheld the order-in-original. Thereafter, the appellant filed appeal before the Tribunal alongwith stay application and while disposing the stay application, this Tribunal vide its order dated 21.04.2011 directed the appellant to deposit an amount of Rs. 20,00,000/- within 8 weeks from the date of order. Thereafter, the stay order was not complied with by the appellant and he has filed a writ petition before the Hon’ble High Court of Jammu and Kashmir and the Hon’ble High Court vide order dated 04.06.2011 directed to keep the stay order in abeyance. Thereafter, the Hon’ble High Court vide its order dated 27.07.2022 disposed of the writ petition with a direction to the Tribunal to decide the stay application after considering the financial hardship of the appellant. Thereafter, this Tribunal vide its order dated 03.03.2023 granted total waiver of pre-deposit and stay the recovery during the pendency of the appeal and fixed the hearing of the appeal for final disposal on 20.04.2023. In this background, we heard the parties on merit on 20.04.2023.
5. Heard the parties and perused the case records.
6. Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law and the binding judicial precedents on the same issue. He further submitted that there are three issues involved in the present appeal and the first issue is regarding the reversal of cenvat credit on input lost in fire as such, the Ld. Counsel submitted that he has no objection so far as the reversal of cenvat credit on input is concerned and in fact he has debited Rs. 4,34,573/- in credit account and Rs. 47,626/- in account current in ER-1 for February 2008 as soon as jurisdictional Range Officer asked him to do and accordingly informed the department.
7. With regard to issue No. 2 pertaining to reversal of cenvat credit on Material in Process (MIP)/Work in Progress (WIP) destroyed in fire, the Ld. Counsel submitted that this demand confirmed by the department invoking Rule 3(5B) and 3(5C) is not legally sustainable as the said rules are not applicable in the instant case and he has informed the department in his reply to the show cause notice and during the personal hearing but the original authority confirmed the demand by invoking Rule 3(5B) and 3(5C) and the same was confirmed by the Commissioner (Appeals).
8. As far as the demand of excess refund of Rs. 4,34,573/- under Notification No. 56/2002-CE dated 14.11.2002 is concerned, the Ld. Counsel submitted that this demand is without any basis and the show cause notice is totally vague and nowhere mentioned in the show cause notice as to in which month excess refund was taken or granted and is based on ill-founded assumptions and presumptions. He further submitted that refund under Notification No. 56/2002-CE is always subject to sanction by Jurisdictional Assistant Commissioner/Deputy Commissioner. Thereafter the ld. Counsel has taken us through the Notification no. 56/2002-CE dated 14.11.2002 to highlight the procedure for grant of refund. He further submitted that the show cause notice is silent as to when, by whom and by which order-in-original refund was granted and in which month. Ld. Counsel further submitted that in fact no refund was taken for the month of February 2008 and therefore there was no question of excess refund. In support, the Ld. Counsel relied upon the following decisions:-
