CENVAT Credit-Inputs & Machinery lost in Fire

[Vinay Sharma]

The Inputs/Semi Processed Goods and Machinery lost due to fire in Factory premises.

Are we supposed to reverse the CENVAT credit on Inputs and Machinery.

What happens if the insurance company pays for excise component of Inputs and capital goods lost in fire.

Please clarify.

 

[YAGAY and SUN]

Yes Sir, There is departmental clarification/circular in this regard for reversal of CENVAT credit.

[Vinay Sharma]

  Dear Sir,

Please provide copy or number of Circular. Also lest us know if the same is enforceable in light of the  H C judgement Tata Advanced Materials Ltd. 2011 (4) TMI 1124 - KARNATAKA HIGH COURT of April 11

 

 

[YAGAY and SUN]

CENVAT credit taken on inputs need to be reversed if duty remitted on final product.

 

Rule 3(5c) of the CENVAT credit Rules (as inserted w.e.f. 07-09-2007) provides that if duty on final product is remitted under Rule 21 of Central Excise, CENVAT credit of duty paid on inputs used in manufacture or such goods shall be reversed. [CENVAT credit of input services and capital goods is not required to be reversed].

[NANDKUMAR SAGWEKAR]

As per the reply of  Mr. Khatri , you have to reverse the Cenvat Credit

[Vinay Sharma]

Dear Mr. Pradeep Khatri,

Question of Remission of duty on final product is not involved as material lost in fire is inputs and semi processed inputs. Are we required to reverse the input credit ?

Regards

 

 

[NANDKUMAR SAGWEKAR]

Yes because Inputs are not used for manufacture of excisable goods. Cenvat credit scheme is introduced to remove the cascasding effect.

AI Summary

CENVAT credit reversal required when excise duty on final product is remitted; inputs lost by fire treated accordingly.
CENVAT credit on inputs must be reversed when duty on the final product is remitted; input services and capital goods are not required to be reversed under that provision. Commentators affirm departmental guidance requiring reversal in such circumstances and argue that inputs destroyed by fire, not having been used in manufacture, justify reversal to avoid cascading. The treatment where insurance pays the excise component was queried but not resolved in the discussion.