2007 (2) TMI 518 - AT - Customs

Tribunal Rules No Excise Duty on Goods Destroyed in Fire; Exempts Work in Progress from Duty Liability.

The Tribunal allowed the appeal, ruling that the raw materials and capital goods destroyed in the fire accident were in use for their intended purpose and ... Remission of duty - 100% EOU - Due to fire accident - loss of the certain capital goods, raw materials, work in progress and semi-finished goods both imported and indigenously procured - Applicability of Explanation to Rule 6 of Central Excise - manufacturing herbal extracts, chemicals etc. - HELD THAT:- In the present case, the goods were destroyed not during the transport from the place of procurement to the manufacturer’s premises or during handling or storage in the manufacturer’s premises. The Revenue has no problem in remitting the Customs duty u/s 23 of the Customs Act. As regards the goods indigenously procured, both capital goods and raw materials are involved. The fire accident occurred in the production premises there is ample evidence and that fact is not under dispute. This clearly indicates that the raw materials have already been issued for the intended purpose. Therefore the materials lost in fire accident were in the form of ‘work in progress’. The Revenue’s contention and the Commissioner’s (Appeals) view that even the ‘work in progress’ material would be covered by the Explanation to Rule 6 is not correct. Further, we would like to point out that according to Rule 21 of the Central Excise Rules, there is a provision for remission of duty in respect of the goods lost or destroyed by natural causes for unavoidable accidents. Even under Section 23 of the Customs Act, there is a provision of remission of Customs duty on goods lost or destroyed before their clearance. Therefore it does not stand to reason that the duty on indigenously procured duty free raw materials should be demanded when they are destroyed due to unavoidable accident/natural causes on the specious ground that they have not been used for the intended purpose. We find that the order of the Original authority is well reasoned. Therefore we hold that the raw materials/capital goods which are in the premises of production would not be hit by the Explanation to Rule 6. The above goods have actually been used for the intended purpose. The accident is not the making of the appellant and it should be considered to be an act of God. Hence it is not correct to demand the duty forgo. We allow the appeal with consequential relief. Issues involved:1. Interpretation of Rule 6 of Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.2. Liability to pay Central Excise duty on goods destroyed in a fire accident for a 100% E.O.U. manufacturing herbal extracts and chemicals.3. Application of the Explanation to Rule 6 regarding the usage of goods and duty liability.4. Comparison of provisions for remission of duty under Rule 21 of the Central Excise Rules and Section 23 of the Customs Act in cases of goods lost or destroyed due to unavoidable accidents.Detailed Analysis:1. Interpretation of Rule 6:The case involved a dispute over the application of Rule 6 of the Central Excise Rules, specifically whether the Rule applies to goods destroyed in a fire accident. The appellant argued that Rule 6 only applies to goods under transport or lost during handling/storage in the manufacturer's premises, not to goods already issued for production. The Tribunal examined the provisions of Rule 6 and the explanation provided therein to determine the correct interpretation.2. Liability for Central Excise Duty:The main issue was the liability of the appellant to pay Central Excise duty on goods destroyed in a fire accident. The Revenue contended that since the goods were not used for the intended purpose, the duty liability still exists. The Commissioner (Appeals) upheld the Revenue's appeal, stating that even if the goods were in work in progress, they are covered by Rule 6 and liable for duty payment. The appellant challenged this decision, emphasizing that the goods were already issued for production and should not be subject to duty payment.3. Application of Explanation to Rule 6:The Tribunal analyzed the Explanation to Rule 6, which clarifies that goods shall be deemed to have been used for the intended purpose even if lost or destroyed by natural causes or accidents during transport, handling, or storage. The Commissioner (Appeals) interpreted the term 'handling' broadly to include usage of goods until further processing stops. However, the Tribunal disagreed with this interpretation, stating that the goods destroyed in the fire accident were in the form of work in progress and had been used for the intended purpose, thus not liable for duty payment.4. Remission of Duty Provisions:The Tribunal also compared the provisions for remission of duty under Rule 21 of the Central Excise Rules and Section 23 of the Customs Act. It noted that both regulations provide for remission of duty in cases of goods lost or destroyed due to natural causes or unavoidable accidents. The Tribunal highlighted that demanding duty on indigenously procured raw materials destroyed in a fire accident contradicts the provisions for remission of duty in such circumstances, especially when the goods were already in use for the intended purpose.In conclusion, the Tribunal allowed the appeal, ruling that the raw materials and capital goods destroyed in the fire accident were in use for the intended purpose and should not be subject to duty payment, considering the circumstances of the accident as beyond the appellant's control.