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Commr. of C.Ex. & Cus. v/s GDN Garments

    Tax Appeal Nos. 1144 of 2009 & 593 of 2010
    Decided On, 07 July 2010
    At, High Court of Gujarat At Ahmedabad
    By, THE HONOURABLE MS. JUSTICE H.N. DEVANI & THE HONOURABLE MR. JUSTICE D.A. MEHTA
    For the Appellant: R.J. Oza, Advocate. For the Respondent: None.


Judgment Text
H.N. Devani, J.

1. Since common issues of the facts and law are involved in both these appeals and the parties are also common, the same were taken up for hearing together and are disposed of by this common judgement.

2. In these appeals u/s 35G of the Central Excise Act, 1944 (the Act), appellant-revenue has proposed the following questions:

Tax Appeal No. 1144 of 2009:

(A) Whether or not the respondent is obliged to reverse Cenvat Credit on the inputs contained in finished goods/semi-finished goods destroyed in fire and such loss of finished goods/semi-finished goods has been adequately compensated by the Insurance?

(B) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in ignoring legislative intent of Mod-vat/Cenvat scheme that the duty paid on inputs can be taken as credit for payment of duty on the finished products so as to provide relief against the cascading effect of the Excise duty and any action otherwise would defeat the purpose of Modvat/Cenvat Scheme and would give an unwarranted benefit to the assessees?

(C) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in deciding the appeal by applying ratio of judgment in case of Grasim Industries v. Commissioner of Central Excise, Indore reported in 2007 (208) E.L.T. 336 (Tri.-LB) by ignoring jurisdictional fact that the respondent has received compensation of the value of finished goods, semi-finished goods etc. from the insurance company?

Tax Appeal No. 593 of 2010:

(A) Whether the Tribunal is justified in allowing remission of duty in respect of the finished goods destroyed in fire when the assessee had not reversed Cenvat credit availed on inputs containing in the finished goods destroyed in fire considering Rule 21 of the Central Excise Rules, 2002 & CBEC Circular No. 800/33/2004, dated 1-10-2004?

(B) Whether the Tribunal has erred in ignoring the basic intention of the Modvat/Cenvat scheme that the duty paid on inputs can be taken as credit for payment of duty on the finished products so as to provide relief against the cascading effect of the Excise duty and any action otherwise would defeat the purpose of Modvat/Cenvat Scheme and would give an unintended benefit to the assessees?

(C) Whether the Tribunal is justified in allowing remission of duty in respect of the finished goods destroyed in fire when the assessee had already been compensated by the insurers for the value of the finished goods which is inclusive of the duties and taxes?

3. The respondent herein is a registered manufacturer holding Central Excise Registration. On 28th August, 2005, a fire took place at the factory premises of the respondent. The said occurrence was reported to the jurisdictional Central Excise Range Superintendent on 2nd September, 2005, who visited the factory and drew up a Panchnama on 5th September, 2005. Subsequently, the assessee was asked to furnish details regarding the quantity and value of excisable goods lost in the fire pursuant to which, the assessee informed that the goods had been segregated and were ready for quantification. Some quantity of the goods was saved from fire. The quantity of finished goods, raw materials (cenvatable) and semi-finished goods destroyed in the fire were quantified under the Panchnama dated 28th December, 2005 and details of the destroyed goods ascertained were recorded in Annexures A, B and C to the Panchnama. According to revenue, under Sub-rule (1) of Rule 3 of Cenvat Credit Rules, 2004 (the Rules), the Cenvat credit is allowable on inputs used in or in relation to the manufacture of final products. In the facts of the present case, since the inputs as such and inputs contained in some semi-finished goods had not been used in the manufacture of final products but lost in the fire before the same could be used for manufacture of final products, according to revenue the cenvat credit availed on such destroyed inputs amounting to Rs. 2,18,624/- and on inputs contained in the destroyed semi-finished goods valued at Rs. 15,631/-, totally amounting to Rs. 2,34,255/- was inadmissible and was required to be reversed. The assessee had also availed of Cenvat credit on inputs contained in the finished goods which were lost in the fire. According to revenue, credit amounting to Rs. 1,29,160/- was also required to be reversed in terms of Circular No. 800/33/2004-C.Ex. dated 1-10-2004 issued by the Central Board of Excise & Customs. Accordingly, show cause notice came to be issued to the respondent assessee on the ground that the assessee had not reversed the Cenvat credit on inputs lying as such, on inputs contained in semi-finished goods not used in manufacture and also for having contravened the provisions of Circular No. 800/33/2004-C.Ex. dated 1-10-2004, inasmuch as the assessee had not reversed Cenvat credit on the inputs contained in finished products, which had been lost in the fire. The show cause notice culminated into an order dated 27th May 2008 made by the Assistant Collector, Central Excise, whereby the demand came to be confirmed along with interest.

4. The respondent carried the matter in appeal before Commissioner (Appeals) who vide order dated 12th November 2008, dismissed the appeal and upheld the order passed by the Assistant Commissioner. The assessee preferred second appeal before the Tribunal and partly succeeded.

5. Simultaneously, the respondent vide letter dated 2nd February 2006, applied for remission of Cenvat duty to the tune of Rs. 3,63,450/- which had been availed by it on the inputs destroyed as such, as well as the inputs contained in the semi-finished and finished goods destroyed in the fire. Subsequently, the respondent submitted a revised application dated 18th August 2006 for remission of duty on the final product only. Show cause notice dated 26th April 2007, came to be issued proposing to reject both the aforesaid applications which came to be adjudicated vide order dated 17th March 2009 whereby both the remission applications came to be rejected. Being aggrieved, the assessee preferred appeal before the Tribunal along with application for condonation of delay. The Tribunal, vide the impugned order held that the respondent was eligible for remission of duty involved in the final product. Before the Tribunal, it was stated on behalf of the respondent that the respondent is seeking remission of duty on final product to the extent of Rs. 1,11,862/- only. Accordingly, the Tribunal allowed the claim of remission to the extent of Rs. 1,11,862/-.

6. In relation to Tax Appeal No. 1144 of 2009, Mr. R. J. Oza, learned Senior Standing Counsel for the appellant-revenue submitted that insofar as inputs contained in semi-finished goods are concerned, it cannot be said that the same have been used in the manufacture of final products as the semi-finished goods had been lost in the fire before being used in the manufacture of final products. Hence, the Cenvat credit in relation to the destroyed semi-finished goods was inadmissible and was required to be reversed. It was further submitted that in light of the Circular No. 800/33/2004-CEx, dated 1-10-2004, the respondent was also liable to reverse the Cenvat credit availed of in respect of inputs contained in the finished products which were also lost in the fire.

7. In relation to Tax Appeal No. 593 of 2010, the learned Senior Standing Counsel reiterated the grounds stated in the memo of appeal and submitted that since the assessee had not reversed the credit availed of in respect of inputs contained in finished goods destroyed, the claim for remission of duty of finished goods destroyed in fire was not available to the assessee. It was further submitted that the Tribunal has failed to appreciate that the assessee had already been compensated by the Insurance Company inasmuch as, the assessee had received compensation of the value of inputs as such as well as value of semifinished goods and finished goods, which always includes the duty element.

8. As can be seen from the impugned order dated 3rd March 2009 made by the Tribunal, which is subject matter of challenge in Tax Appeal No. 1144 of 2009, the Tribunal has noted that it was the case of the assessee that the insurance claim received by it does not cover the duty element qua the inputs contained in the finished and semi-finished goods. The Tribunal held that cenvat credit in respect of inputs contained in finished/semi-finished goods cannot be demanded in view of the decision of the Larger Bench of the Tribunal in the case of Grasim Industries v. Commissioner of Central Excise, Indare 2007 (208) E.L.T. 336 (Tri.-LB) wherein it has been held that there is no need to reverse the cenvat credit on inputs contained in finished goods/semi-finished goods destroyed in fire. However, the duty liability as regards the inputs destroyed as such came to be confirmed. Accordingly, it was held that the respondent was liable to pay an amount of Rs. 2,18,624/- out of which it had already paid an amount of Rs. 1,21,769/- with interest as applicable under Rule 14 of the Rules.

9. On a plain reading of the impugned order of the Tribunal, it is apparent that Tribunal while holding that Cenvat credit in respect of inputs contained in finished/semi-finished goods cannot be demanded, the Tribunal has only followed the decision of the Larger Bench of the Tribunal. In absence of any distinguishing feature having been pointed out on behalf of the revenue, no infirmity can be found in' the approach adopted by the Tribunal. The contention raised on behalf of the revenue vide proposed question [C] that the Tribunal has ignored jurisdictional facts that the respondent has received compensation of the value of finished goods, semi-finished goods etc. from the Insurance Company, is also misconceived inasmuch as it is apparent from the impugned order made by the Tribunal that it was submitted on behalf of the respondent assessee that the insurance claim received by it did not cover the duty element on the inputs contained in the finished/semi-finished goods and no evidence to disprove the same was led before the Tribunal. In the circumstances, it cannot be stated that the Tribunal has committed any legal infirmity so as to warrant interference. The impugned order does not give rise to any question of law, much less a substantial question of law, as proposed or otherwise. In almost similar matter, this Court has dismissed Tax Appeal No. 1363 of 2009 vide order dated 24-6-2010. Tax Appeal No. 1144 of 2009 is accordingly dismissed.

10. Insofar as Tax Appeal No. 593 of 2010 is concerned, as can be seen from the impugned order of the Tribunal, before the Tribunal on behalf of the respondent it was pointed out that initially an application for remission of duty involving the inputs destroyed amounting to Rs. 3,63,450/- had been made. However, upon realizing that the application for remission could have been made only in respect of the duty involved in the final products, the respondent had filed a revised application on 18th August 2006 seeking remission in respect of the duty involved in the final products only. However, the Commissioner had treated the original as well as revised applications as two applications. The Tribunal held that Commissioner (Appeals) should not have rejected the remission application on the ground that there was a delay in filing the application in view of the fact that there are Tribunal's decisions holding that the delay in filing the application cannot be a ground for rejection of remission application when there is no dispute regarding the loss occurring as a result of circumstances outlined in the relevant rules. The Tribunal accordingly, held that the respondent was eligible for remission of duty involved in the fi

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nal product. The second ground for rejecting the remission application was that the respondent had not reversed the Cenvat credit involved in the inputs contained in the final product. The Tribunal placed reliance upon decision of the Larger Bench in the case of Grasim Industries v. Commissioner of Central Excise, Indore (supra) for the proposition that there was no need to reverse the duty involved on the inputs contained in finished goods and goods in process, and held that the respondent was entitled to remission of duty involved in the final product. 11. Thus, the Tribunal has merely followed an earlier decision of the Tribunal and based its conclusions upon findings of fact recorded by it upon appreciation of the evidence on record, which have not been challenged by the revenue by raising any question on the ground of perversity. In the light of the findings of fact recorded by the Tribunal, it is not possible to state that the conclusions arrived at by the Tribunal are in any manner unreasonable or contrary to the material on record so as to warrant interference. 12. In the circumstances, the impugned order of the Tribunal does not give rise to any question of law, much less any substantial question of law, as proposed or otherwise. Accordingly, Tax Appeal No. 593 of 2010 is also dismissed.
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