Unavoidable accident remission under Central Excise law upheld for fire loss, with credit reversal and marketability objections rejected.

Fire caused by an electrical short circuit was treated as an unavoidable accident under Rule 21 of the Central Excise Rules, 2002, so remission was available for the destroyed goods. Denial of remission for non-reversal of Cenvat credit was rejected because the issue was governed by the binding Larger Bench ruling in Grasim Industries, which could not be displaced by a contrary departmental circular. Refusal of remission for semi-finished goods was also set aside, as the reasoning on marketability was internally inconsistent with the fact that the goods were damaged in fire. The assessee's claim for remission succeeded and the rejection order was set aside in full.

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Issues: (i) whether fire caused by electric short circuit in the factory constituted a natural cause or unavoidable accident for the purpose of remission under Rule 21 of the Central Excise Rules, 2002; (ii) whether remission could be denied on the ground that Cenvat credit had not been reversed in respect of the destroyed goods; and (iii) whether remission could be refused in respect of semi-finished goods on the ground that they had not attained marketable status.

Issue (i): whether fire caused by electric short circuit in the factory constituted a natural cause or unavoidable accident for the purpose of remission under Rule 21 of the Central Excise Rules, 2002

Analysis: The fire was accepted as having occurred due to short circuiting, which was treated as an electrical malfunction and not as a result of deliberate conduct. The expression "natural cause" and "unavoidable accident" in Rule 21 was applied in a practical and liberal manner. The circumstance that a fire had occurred earlier in a different premises was held irrelevant to the present accident.

Conclusion: The fire was held to be covered by the expression "unavoidable accident", entitling the assessee to remission.

Issue (ii): whether remission could be denied on the ground that Cenvat credit had not been reversed in respect of the destroyed goods

Analysis: The question was treated as covered by the Larger Bench decision in Grasim Industries, which the adjudicating authority was bound to follow. The Board circular could not override the declared law on the point, and the refusal of remission on that basis was found unsustainable.

Conclusion: Denial of remission for non-reversal of Cenvat credit was rejected.

Issue (iii): whether remission could be refused in respect of semi-finished goods on the ground that they had not attained marketable status

Analysis: The reasoning was that if the goods were treated as non-dutiable because they had not attained marketability, duty could not be demanded; alternatively, if duty otherwise arose, remission had to follow because the goods were admittedly damaged in fire. The ground adopted by the Commissioner was therefore inconsistent.

Conclusion: Refusal of remission in respect of semi-finished goods was set aside.

Final Conclusion: The assessee's claim for remission succeeded and the impugned order rejecting remission was set aside in entirety.

Ratio Decidendi: Fire caused by electrical short circuit may constitute an unavoidable accident for Rule 21 remission, and a binding Larger Bench decision governs the issue of credit reversal notwithstanding a contrary departmental circular.

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