CENVAT credit on flood-destroyed goods need not be reversed absent a specific reversal rule

CENVAT credit on inputs used in finished and semi-finished goods destroyed in a flood was not required to be reversed because the applicable rule then in force did not contain any specific reversal condition for such destruction. The Larger Bench view was followed to treat destruction by flood or similar natural causes as outside the reversal requirement. Rule 3(5C) of the CENVAT Credit Rules, 2004 was held to operate prospectively only and could not govern earlier loss. Credit attributable to inputs used in semi-finished goods was also sustained because those inputs were treated as having been put to intended use.

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Issues: Whether CENVAT credit taken on inputs contained in finished goods and semi-finished goods destroyed in flood was required to be reversed.

Analysis: The dispute was governed by the Larger Bench ruling that no reversal of input credit is required where goods are destroyed by flood, fire or similar causes, since such destruction does not attract a condition of reversal in the relevant rule position then applicable. The later insertion of Rule 3(5C) of the CENVAT Credit Rules, 2004 was treated as prospective and could not govern destruction that occurred earlier. On the same reasoning, inputs used in semi-finished goods lost in flood were also treated as having been put to intended use, so credit attributable to them could not be denied.

Conclusion: Reversal of CENVAT credit was not warranted, and the Revenue's challenge failed.

Ratio Decidendi: In the absence of a specific statutory provision requiring reversal, CENVAT credit on inputs used in goods destroyed by flood or similar natural causes need not be reversed; a later amending provision cannot be applied retrospectively.

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