Duty on fire-destroyed finished goods sustained, while demand and penalty on damaged inputs were set aside under the excise rules.

Finished goods destroyed in fire were found not to qualify for remission on the facts, so the duty demand on those goods was sustained, though no penalty was imposed. By contrast, the demand and penalty relating to damaged inputs were set aside because the duty position had been correctly worked out under the applicable Central Excise Rules and the payment was accepted as proper. The order was therefore modified to maintain duty on the destroyed finished goods while granting relief on the demand and penalty for the damaged inputs.

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Issues: (i) whether duty was payable on finished goods destroyed in fire and whether remission could be granted; (ii) whether the demand and penalty in respect of damaged inputs was sustainable.

Issue (i): whether duty was payable on finished goods destroyed in fire and whether remission could be granted.

Analysis: The finished goods had suffered destruction in fire. The claim for remission of duty was not pressed and, in any event, remission was held to be unavailable on the facts. The duty demand on the destroyed finished goods was therefore required to be sustained, though penalty was not considered warranted.

Conclusion: The duty demand of Rs. 15,742 on the finished goods was confirmed against the assessee, without penalty.

Issue (ii): whether the demand and penalty in respect of damaged inputs was sustainable.

Analysis: The inputs had suffered damage, but the duty position was found to have been correctly worked out under Rule 57-I of the Central Excise Rules as amended, and the payment had been accepted as proper by the appellate authority. On that basis, the demand with penalty was held to be unsustainable.

Conclusion: The demand and penalty in respect of the damaged inputs were set aside and the assessee succeeded on this issue.

Final Conclusion: The order under challenge was modified by sustaining the duty on destroyed finished goods while maintaining relief on the demand and penalty relating to damaged inputs.

Ratio Decidendi: Where finished goods destroyed in fire do not qualify for remission, duty remains payable, but a demand relating to duty-paid inputs cannot be sustained when the payment has been correctly made under the applicable rules.

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