Prospective CENVAT reversal rule bars denial of credit for pre-amendment fire-loss goods despite insurance reimbursement.

For periods before 07.09.2007, CENVAT credit validly taken on inputs used in finished goods destroyed in fire was not required to be reversed merely because the loss was later reimbursed by an insurer. The amendment introducing Rule 3(5C) of the Cenvat Credit Rules, 2004 operated prospectively and did not apply retrospectively to earlier periods. Applying that binding principle, the Tribunal held that the assessee could retain the credit and the refund claim could not be denied on the ground of insurance recovery.

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Issues: Whether CENVAT credit taken on inputs used in manufacture of finished goods destroyed in fire, and subsequently recovered from the insurance company, was liable to reversal for a period prior to 07.09.2007.

Analysis: The dispute was governed by the legal position before insertion of Rule 3(5C) of the Cenvat Credit Rules, 2004. The jurisdictional High Court authority held that the amendment introducing reversal of credit on remission of duty was prospective from 07.09.2007 and did not operate retrospectively. For the period prior to that date, there was no provision requiring reversal of validly taken credit merely because the goods were destroyed and the loss was compensated by insurance. The Tribunal followed that binding view and applied it to the present dispute, which also related to a period before 07.09.2007.

Conclusion: The assessee was entitled to retain the CENVAT credit and the refund claim could not be denied on the ground of insurance recovery.

Ratio Decidendi: In the absence of a retrospective statutory provision, validly taken CENVAT credit cannot be denied or reversed for a pre-amendment period merely because the insured loss was reimbursed by the insurer.

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