Case Law Details
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:-
- M/s Cipy Polyurethanes Pvt. Ltd. vs. CCE, Kolhapur-2021 (07) LCX 0315
- M/s Kanoria Chemicals & Industries vs. CCE Ahmedabad 2010 (10) LCX 0055
- Nectar Lifesciences Ltd. vs. CCE, Chandigarh-II – vide Final Order No. 56185/2013 dated 26.04.2013
- Commissioner of Central Excise, Service Tax Rohtak vs. Park Nonwoven Pvt. Ltd. – 2015 (04) LCX 0222
- Park Nonwoven Pvt. Ltd. vs. CCE, Rohtak 2014 (04) LCX 0133
- Park Nonwoven Pvt. Ltd. vs. CCE, Delhi-III vide Final Order No. A/60318/2017 dt. 1.03.2017
- Park Nonwoven Pvt. Ltd. vs. CCE, Panchkula Vide Final Order No. 63382/2018 DT. 2.11.2018
- Arvind International Ltd. vs. CCE, Jaipur 2012 (04) LCX0066
- CCE, Chennai-IV vs. Fenner India Ltd. -2013 (12) LCX0113
9. On the other hand, the Ld. AR reiterated the findings in the impugned order.
10. After considering the submissions of both the parties and perusal of the material on record. We find that as far as the first issue regarding the reversal of cenvat credit on input lost in fire as such there is no dispute and the appellant himself has reversed the cenvat credit which is admitted by the department itself. Therefore, there is no dispute with regard to this issue.
11. As far as the second issue pertaining to cenvat credit on material in process/work in progress destroyed in fire is concerned, we find that the original authority as well as the appellate authority both have invoked Rule 3(5B) and 3(5C) to confirm the demand. Hear, it is pertinent to reproduce the Rule 3 of Cenvat Credit Rules, 2004 as under:-
Rule 3 CENVAT Credit
(5) When inputs or capital goods on which CENVAT credit has been taken are removed as such from the factory, or premises of the provider of output service the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9.
(5B) If the value of any,
(i) input, or
(ii) capital goods before being put to use,
on which CENVAT credit has been taken is written off fully or partly or where any provision to write off fully or partially has been made in the books of account then the manufacturer or service provider as the case may be shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods.
Provided that if the said inputs or capital goods is subsequently used in the manufacture of final products or the provision of output services, the manufacturer or the output service provider, as the case may be shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to other provisions of these rules.
(5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed.
Explanation 1.- The amount payable under sub-rules (5), (5A), (5B) and (5C), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March.
Explanation 2.- If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken and utilised.
Now, the only question which arises here is whether in the facts and circumstances of this case, Rule 3(5B) and 3(5C) are applicable or not?
This issue has been considered by various benches of the Tribunal, in this regard, it is pertinent to refer the decision in the case of M/s CIPY Polyurethanes Pvt. Ltd. vs. CCE, Kohlapur – 2021(07) LCX 0315 wherein the division bench of this Tribunal after considering various decisions of the Tribunal on this issue has held as under:-
“11. Further, I find that C.B.E. & C. Circular No. 907/27/2009- C.E., dated 7-122009 is contrary to the judicial pronouncement of this Tribunal wherein in the case of Nector Lifescience (supra), this Tribunal has examined the Rule as well as the C.B.E. & C. Circular and thereafter held as under :
“13. We further note that the legal issue as regards reversal of credit is well settled. If the inputs, on which the credit stand availed were issued for further manufacture of the goods and goods are destroyed during the course of manufacture of the goods, no reversal of Cenvat credit is called for. For the above proposition, reference can be made to the Tribunal’s decision in the case of Commissioner of Central Excise and Customs, Pune v. Spectra Speciality [2008 (231) E.L.T. 346 (Tri.-Mum.)] as upheld by the Hon’ble Supreme Court as reported in *2009 (240) E.L.T. A77+. To the same effect is another decision of the Tribunal in the case of Commissioner of Central Excise, Chennai v. Indchem Electronics [2003 (151) E.L.T. 393 (Tri.-Chennai)] wherein it stand held that where inputs were actually issued and thereafter destroyed in fire accident, there is no requirement of reversal of Cenvat credit. The said decision also stands upheld by the Hon’ble Supreme Court, when the appeal filed by the Revenue was dismissed, as reported in 2003 (157) E.L.T. A206 (S.C.)]. The list is unending and we do not feel any need to refer to all such decisions as the issue is almost settled
12. Therefore, I hold that respondents are not required to reverse the Cenvat credit. As such, I do not find any infirmity in the impugned order. Same is upheld. Appeal filed by the Revenue is dismissed.”
4.9 In case of SMG International [2016 (344) ELT 1031 (TChand)] tribunal has held as follows:
“7. In this case the appellant has filed the claim refund on duty paid by them on account of reversal of Cenvat credit availed on inputs which were used in work in progress/semi-finished goods. Admittedly, the inputs on which Cenvat credit was availed by the appellant were used in manufacture of final goods. Therefore, the Cenvat credit cannot be denied to the appellant, moreover, the work in progress lost in fire. Therefore, appellant is not entitled for claim of remission of duty but the appellant cannot be asked to reverse Cenvat credit. It is a fact on record that the appellant has not written off the value of semi-finished goods/work in progress. In that circumstance, Rule 3(5B) of the CCR, 2004 is not applicable in this case. Further, I have gone through to the provisional Rule 3(5C) of the Cenvat Credit Rules, 2004 which are not applicable to the facts of this case as appellant has not filed any claim of remission of duty under Rule 21 of the Central Excise Rules, 2002. Therefore, the impugned order is not sustainable in the eyes of law. Consequently, the same is set aside and the appeal is allowed with consequential relief, if any.”
4.10 From the above decision it is quite evident that Rule 3 (5B) is applicable only in the situation were the inputs or capital goods have become obsolete and written off. It is not applicable in the situations where the inputs and semi finished goods are destroyed in fire accident.”
Since, this issue is no more res-integra in view of the judgement of the Tribunal cited (supra) and further upheld by the Hon’ble Apex Court cited (supra), we hold that this demand is not sustainable and is set-aside.
12. As far as the demand of excess refund of Rs. 4,34,573/- is concerned, we find that the show cause notice in this regard is totally vague and does not mention as to when, by whom and vide which order-in-original refund has been granted and in which month. Further, we find that the appellant has categorically stated that no such refund was taken for the month of February 2008 as alleged by the department. Hence, there is no question of excess refund which is to be paid to the department. This issue is also decided against the department.
13. In view of our discussion above, we are of the considered view that the impugned order is not sustainable in law and accordingly we set-aside the same by allowing the appeal of the appellant with consequential relief, if any, as per law.
(Pronounced on 21.07.2023)
