CENVAT credit on inputs in destroyed work-in-progress need not be reversed when fire occurs during manufacture.

CENVAT credit on inputs issued for manufacture need not be reversed where the work-in-progress containing those inputs is destroyed in a fire during the manufacturing process and there is no diversion of goods. The settled position applied is that destruction of WIP in such circumstances does not by itself create an obligation under the Cenvat Credit Rules, 2002 to reverse validly taken credit. On that basis, the contrary departmental view was not accepted, and the demand, interest and penalty were held unsustainable.

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Issues: Whether CENVAT credit taken on inputs forming part of work-in-progress destroyed in fire was required to be reversed.

Analysis: The appellant had availed CENVAT credit on inputs used in manufacture, and the work-in-progress containing such inputs was destroyed in a fire accident. The dispute turned on whether destruction of inputs in WIP, without diversion of goods and in the course of manufacture, created any legal obligation under the Cenvat Credit Rules, 2002 to reverse the credit. The Tribunal followed the settled position that where inputs had been issued for manufacture and were lost in fire during the manufacturing process, there was no requirement to reverse the credit merely because the WIP was destroyed. The contrary departmental view was held to be unsupported in the facts of the case.

Conclusion: Reversal of CENVAT credit was not required, and the demand, interest and penalty were unsustainable.

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