Cenvat credit on inputs used in manufacture need not be reversed when goods are accidentally destroyed by fire

Cenvat credit on inputs issued for manufacture was not required to be reversed when partially processed goods were destroyed in an accidental fire at the job worker's premises. The inputs had already been put to use in manufacture, and the subsequent loss did not undo satisfaction of the credit condition. Delayed intimation to excise authorities and absence of a departmental panchnama did not change the result, as the incident had been reported to the police, local authorities and insurer. The operative principle is that accidental destruction after issue of inputs for manufacture does not by itself trigger reversal of validly taken Cenvat credit.

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Issues: Whether Cenvat credit taken on inputs sent to a job worker was required to be reversed when the partially processed goods were destroyed in a fire at the job worker's premises.

Analysis: The goods were issued for manufacture and the fire was treated as an accident. The only lapse noted was delayed intimation to Central Excise authorities and absence of panchnama by them, but the incident had been reported to the police, local authorities and the insurer. The destruction of the goods by fire, even though aided by water used to extinguish it, did not alter the fact that the inputs had been put to use in manufacture. On the principle laid down in the Larger Bench decision relied upon, once inputs are issued for manufacture, the credit condition stands satisfied and subsequent accidental destruction does not require reversal of credit.

Conclusion: The assessee was not required to reverse the Cenvat credit taken on the destroyed inputs, and the claim succeeded.

Ratio Decidendi: Where inputs have been issued for manufacture and the processed goods are accidentally destroyed before clearance, Cenvat credit taken on such inputs is not liable to reversal merely because the goods are lost in fire.

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