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). There was fire in our finished goods stock yard and we have submitted an application for remission of duty under Rule 21. We have now received a letter from the Department to reverse the CENVAT credit involved on duty paid inputs contained in finished goods with interest and brief report from us about the steps taken to avoid fire accident.

Presently, huge amount of Input service credit is accumulated in our Input service credit account. Kindly let us know whether accumulated credit of input services can be used to reverse the Excise duty involved in the Inputs/auxiliary chemicals contained in the finished goods i.e. DRI, burnt by fire? Kindly advise in the matter. As regards, the payment of interest, the same shall be paid by us in cash.

Regards,

VINAY

[Rajagopalan Ranganathan]

Sir,

As per rule 3 (5C) of Cenvat Credit rules, 2004 "Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods ³and the CENVAT credit taken on input services used in or in relation to the manufacture or production of said goods shall be reversed."

As per Explanation-1 of the above mentioned rule "the amount payable under sub-rules (5), (5A), (5B) and (5C), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March. Therefore you can pay the cenvat credit availed on the inputs contained in the destroyed goods and input service utilized for the manufacture of destroyed goods by debiting your cenvat credit account.

If the same is paid beyond the date specified in the explanation then it will attract interest. Interest is to be paid in cash only.

[MADAN RAHEJA]

Cenvat credit of input services can be utilized for payment of excise duty on goods manufactured by you and ipso facto for reversal of credit on inputs contained in finished goods burnt in fire for claiming remission of duty. There is no restriction for cross utilization of credit availed on inputs and input service for paying excise duty by a manufacturer under Rule 3 of Cenvat Credit Rules.

[Suryanarayana Sathineni]

Dear Vinay,

The views expressed by our learned friends are right and need no intervention. However, I feel , you need to consider the following before reversing the credit.

As per the Rule, the proportionate credit on the inputs used in the finished Goods applied for remission, to be reversed only after the duty is remitted and not before. Generally, the reversal at the time of destruction of the remitted goods ( after permission.

But in your case the goods already destroyed in fire and to process your application , the Department is asking for reversal of credit and also to submit the steps taken to avoid/prevent the accidents ( Ex: Fire accident)

I feel,the intention of the Department behind asking for the steps taken is to ascertain whether the accident is happened beyond your control or otherwise to consider your remission application.

In this context, I suggest you to submit the detailed steps/precautions taken/provided in your plant to prevent fire and justify that despite all the required steps taken, the incident happened beyond your control.

Further, pl. do not reverse the credit till you hear about the remission application from the department (approved /rejected)

In the worst scenario, if the department rejects your application, I am afraid you may have to pay the applicable duty on the value of the destroyed goods.

Regards

Suryanarayana

[KASTURI SETHI]

Sh.Vinay Wakde Ji,

The advice given by both experts is fool-proof to the core. I would like to just add that if insurance Co.'s report is in your favour, nothing to panic; normally, the department remits the duty involved in the finished goods destroyed in fire. Duty element is not to be claimed in the insurance claim from the insurance Co.

[YAGAY andSUN]

Notification No. 33/2007-Central Excise (N.T.) September 7, 2007

 

[YAGAY andSUN]

2015 (10) TMI 1985 - CESTAT NEW DELHI - M/s. Barodia Plastic Pvt. Ltd. Versus C.C.E. Rohtak & Delhi-III

[KASTURI SETHI]

M/S. YAGAY AND SUN,

Thanks a lot Sir for posting Board's Circular and latest CESTAT judgement on the issue. Both are useful for us in consultancy.

[KASTURI SETHI]

Remission of duty - Loss of goods due to fire - Onus on assessee to prove happening of accident due to natural causes, unavoidable and beyond his control

The Supreme Court Bench comprising Hon’ble Mr. Chief Justice H.L. Dattu, Hon’ble Mr. Justice Arun Mishra and Hon’ble Mr. Justice Amitava Roy on 3-8-2015 dismissed the Petition for Special Leave to Appeal (C) No. 19620 of 2015 filed by Gangeshwar Ltd. against the Judgment and Order dated 19-3-2015 of Allahabad High Court in C.E.R. No. 8 of 2009 as reported in 2015 (322) E.L.T. 444 (All.) = 2015 (4) TMI 166 - ALLAHABAD HIGH COURT(Commissioner v. Gangeshwar Ltd.).

The Allahabad High Court in its impugned order had held that onus was on assessee to prove that fire accident in godown destroying excisable goods happened due to natural causes on which he had no control and was unavoidable. High Court set aside order of Tribunal placing such onus on Department. It was also held that in instant case opinion of Chief Fire Officer that fire accident could be due to careless smoking of biris and cigarettes has not been disputed by assessee and no other evidence has been adduced to show as to what steps were taken by assessee to avoid fire accident.

[Gangeshwar Ltd. v. Commissioner - 2015 (322) E.L.T. A239 (S.C.)=2015 (10) TMI 350 - SUPREME COURT]

AI Summary

Cenvat credit reversal: inputs and input service credit must be reversed when duty remission is invoked, interest payable in cash. Where duty on manufactured goods is ordered to be remitted under the remission procedure, the manufacturer must reverse the CENVAT credit taken on inputs used in the manufacture of those goods and the CENVAT credit on input services used in or in relation to such manufacture; the amount due may be paid by debiting the CENVAT account, delays attract interest and interest must be paid in cash.