Finished goods burnt by fire- reg

[vinay wakde]

We are manufacturer finished goods namely Direct Reduced Iron (DRI) i.e. Sponge Iron (CH No. 7203 10 00). Recently, there was fire in our finished goods stock yard where the DRI was stored. We have submitted an application for remission of duty under Rule 21 to the jurisdictional Central Excise authorities. We have now decided to recycle/consume the said burnt material with our raw material in proportion 10:90 in the plant, after seeking necessary permission from the Central Excise.

Kindly let us know, whether proportionate CENVAT taken to be reversed to the extent of quantity consumed for manufacture of DRI which is subsequently burnt? is there any duty demand in future from the Department?

With Best regards,

VINAY

[KASTURI SETHI]

Mr.Vinay Wakde Ji,

Firstly, you must give top priority to obtain remission of duty involved on the finished goods destroyed in fire. The department will not remit the duty unless or until cenvat credit involved on the inputs contained in finished goods is reversed in full as per Rule 3 (5C) of the Cenvat Credit Rules as amended. On this very issue, there is judgement of Hon'ble Supreme Court in the case of Gangeshwar Ltd. Vs.Commissioner reported as -2015(322) ELT.A 239/SC = 2015 (10) TMI 350 - SUPREME COURT wherein the remission of duty was denied on the ground that the appellant failed to produce evidence regarding " what steps were taken to avoid fire accident ". This is for your information and for precaution to be taken while applying for remission of duty. Furthermore, naturally, the element of Central Excise duty is not to be claimed from the insurance company.

Secondly, you intend to avail cenvat credit on the residue i.e. burnt goods and raw material into ratio of 10:90, there is no such explicit provision in Cenvat Credit Rules. However, answer to this query is inherent in Rule 3 of Cenvat Credit Rules. For taking and utilization of cenvat credit on inputs/raw materials, there have been two basic parameters in force since the year 1986, the year of inception Modvat (Cenvat) Credit Scheme. These are :-

1. Inputs must be duty paid.

2. Such inputs must be utilized/used in or in relation to the manufacture of dutiable final product.

Note : All other conditions are secondary which are procedural and technical requirements of law.

Now in your case, burnt goods will serve as input to be utilized in the manufacture of dutiable final product. These burnt goods contain duty paid inputs( though burnt). (Documentary evidences are required for receipt of raw material, inventories, utilization and clearance of final products on payment of duty.) Thus if you conform to both the parameters, you can adopt the methodology of 10 :90 for availing proportionate credit.

As already stated above there is no explicit provision, you may get demand SCN from the department but, in my view, ultimately you will be successful in getting the proportionate input credit through prolonged litigation, that too at appellate stage ; may be through Commissioner (Appeals) or CESTAT or High Court

 

 

 

 

 

 

 

 

 

[vinay wakde]

Thanks for your valuable guidance.

With best regards,

VINAY

AI Summary

Cenvat credit reversal required for destroyed finished goods; reuse may allow proportionate credit with evidence and compliance. Remission under Rule 21 requires reversal of Cenvat credit attributable to destroyed finished goods as per Rule 3; remission may be denied absent evidence of precautions against the fire and reversal. Reuse of burnt finished goods as input has no explicit rule, but Rule 3 permits credit if the material is duty paid and actually used in manufacture; documentary evidence and procedural compliance are essential, and the department may issue demand notices leading to litigation.