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of <h1>Tribunal allows appeal, upholds CENVAT credit on goods destroyed in fire accident.</h1> <h3>M/s. Cipy Polyurethanes Pvt. Ltd. Versus Commissioner of Central Excise, Kolhapur</h3> M/s. Cipy Polyurethanes Pvt. Ltd. Versus Commissioner of Central Excise, Kolhapur - TMI Issues Involved:1. Remission of duty on finished goods destroyed in fire.2. Reversal of CENVAT credit on inputs destroyed in fire.3. Reversal of CENVAT credit on inputs contained in semi-finished goods destroyed in fire.4. Demand of interest on confirmed demands.5. Imposition of penalty.Issue-wise Analysis:1. Remission of Duty on Finished Goods Destroyed in Fire:The Commissioner allowed remission of duty on finished goods valued at Rs. 2,24,51,087 destroyed in the fire accident on the night of 02.04.2015, subject to the reversal of CENVAT credit on inputs contained in those finished goods as per Rule 3(5C) of the CENVAT Credit Rules, 2004. The Commissioner found that the fire was accidental and not due to negligence on the part of the appellant. This finding was not challenged by the revenue, making it final. The appellant agreed that remission of duty on finished goods necessitates the reversal of CENVAT credit on inputs contained in those goods.2. Reversal of CENVAT Credit on Inputs Destroyed in Fire:The Commissioner confirmed the demand for reversal of CENVAT credit amounting to Rs. 1,32,43,525 on inputs destroyed in the fire accident under Rule 14 of the CCR, 2004 read with Section 11A(10) of the CEA, 1944. The Commissioner invoked Rule 3(5B) of the CENVAT Credit Rules, 2004, which mandates reversal of credit if the value of inputs is written off in the books of accounts. However, the Tribunal found that Rule 3(5B) is applicable only when inputs are written off due to obsolescence, not when destroyed by fire. The Tribunal cited several decisions, including Indchem Electronics and Spectra Specialities, to support the view that CENVAT credit need not be reversed if inputs are destroyed in an accident.3. Reversal of CENVAT Credit on Inputs Contained in Semi-Finished Goods Destroyed in Fire:The Commissioner confirmed the demand for reversal of CENVAT credit amounting to Rs. 28,93,666 on inputs contained in semi-finished goods destroyed in the fire accident. The Commissioner held that semi-finished goods are not chargeable to duty as they are neither finished goods nor marketable. Therefore, CENVAT credit on inputs contained in semi-finished goods is not admissible. However, the Tribunal found that Rule 21 of the Central Excise Rules, 2002, which allows remission of duty on goods lost or destroyed by accident, applies to all goods, including raw materials, packing materials, and semi-finished goods. The Tribunal held that the Commissioner's interpretation limiting Rule 21 to finished goods was incorrect.4. Demand of Interest on Confirmed Demands:The Commissioner demanded interest at the appropriate rate on the confirmed demands under the provisions of Section 11AA of the Central Excise Act, 1944. Since the Tribunal set aside the demands for reversal of CENVAT credit on inputs and semi-finished goods, the demand for interest was also set aside.5. Imposition of Penalty:The Commissioner imposed a penalty of Rs. 1,00,000 on the appellant under Section 11AC(1)(a) of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002. No penalty was imposed under Rule 15(1) of the CCR, 2004. The Tribunal, having set aside the demands for reversal of CENVAT credit, also set aside the penalty imposed by the Commissioner.Conclusion:The Tribunal allowed the appeal, setting aside the demands for reversal of CENVAT credit on inputs and semi-finished goods destroyed in the fire, along with the associated interest and penalty. The Tribunal found that Rule 21 of the Central Excise Rules, 2002, applies to all goods lost or destroyed by accident, and Rule 3(5B) of the CENVAT Credit Rules, 2004, does not apply to goods destroyed in a fire accident.
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