Cenvat credit reversal cannot be imposed as a condition for remission where goods are destroyed by fire under Rule 21.

Rule 21 of the Central Excise Rules, 2002 permits remission of duty on goods lost or destroyed by fire, but does not, without express statutory wording, require reversal of Cenvat credit on inputs used in finished goods, semi-finished goods, or returned defective goods so destroyed. The Tribunal followed the Larger Bench view that destruction by unavoidable accident cannot be treated as exemption, and held that credit reversal cannot be imposed as a condition for remission; the contrary view was not accepted.

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Issues: Whether Cenvat credit on inputs contained in finished goods, semi-finished goods and returned defective goods destroyed by fire could be demanded as a condition for remission of duty.

Analysis: Relief under Rule 21 of the Central Excise Rules, 2002 for goods lost or destroyed by fire does not, by itself, provide for reversal of Cenvat credit on inputs used in such goods. The Tribunal followed the Larger Bench view that destruction of goods by unavoidable accident cannot be equated with exemption and that, in the absence of a statutory condition, credit reversal cannot be imposed as a prerequisite for remission. The earlier view approving such reversal was not accepted, and the precedent relied upon had already been affirmed by the High Court.

Conclusion: The demand for reversal of Cenvat credit was unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: Where goods are destroyed by fire and remission of duty is granted under Rule 21 of the Central Excise Rules, 2002, reversal of Cenvat credit on inputs cannot be insisted upon unless the rule expressly so provides.

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