Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise vs Indchem Electronics on 20 September, 2002
Equivalent citations: 2003(86)ECC119, 2003(151)ELT393(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. This appeal preferred by the Revenue is directed against the Order-in-Appeal No. 259/97 (M) dated 17-10-97 passed by the Commissioner (Appeals) by which he has allowed the appeal filed by the assessee with consequential relief. This case has got a checkered history and this is the second round of litigation before the Tribunal, as the matter was once remanded back to the Commissioner (Appeals) vide CEGAT Final Order No. 2610/96, dated 7-12-96. The Tribunal while remanding the matter had observed that there was confusion as to the nature of the goods which were destroyed that is, whether the same were inputs as such or intermediate product or product which was in process and had not emerged as intermediate product. It was therefore observed that unless this position is clarified the position in law cannot be examined to decide the rival contention and the lower appellate authority was asked to decide the case de novo after calling for necessary evidence as to the nature of the goods which were destroyed and there after examine as to whether in terms of the Modvat Rules, whether Modvat credit already taken could be asked to be reversed and whether the proper course for the respondents was to seek remedy under Rule 49 of the CE Rules. The present impugned order is as a result of the de novo proceedings.
2. The brief facts of the case are that the respondents herein are manufacturers of electronic automatic exchanges viz. EPABX, RAX and SBM RAX etc. under tariff sub-heading 8517 of the CETA 1985. It was reported to the Range Supdt. on 24-6-93 that there was a fire accident in the factory premises of the assessee and as a result certain quantity of inputs valued at Rs. 1,46,79,988/- was destroyed. The duty involved on such input worked out to Rs. 16,52,879/-. However, the assessee took Modvat credit of duty, involved on such inputs in their RG 23A Part II and the same had also been utilized for payment of duty on the clearance of the finished product. In the instant case, the inputs in question were not actually used in the manufacture of the final products as the same were destroyed in fire accident whereas according to Rule 57A, Modvat credit is allowable only when the inputs are used in or in relation to the manufacture of the final product. Thus the assessee has not followed the procedure outlined under Rule 57A according to the department. In the impugned order the Commissioner (Appeals), relying on the decisions of the Tribunal in the case of CCE v. Foods, Fats and Fertilizers reported in 1989 (41) E.L.T. 277 (T), L & T v. CCE reported in 1992 (61) E.L.T. 510, Prem Pharmaceutical v. CCE, Indore reported in 1996 (88) E.L.T. 278 (T) and CCE, Aurangabad v. Glindia Ltd. reported in 1996 (87) E.L.T: 73 (T), held that the inputs in the present case had become waste due to the fire accident during the course of manufacture and hence the provisions of Rule 57D(1) would squarely cover the case and in that view of the matter he held that there was no warrant to reverse the input credit taken. Aggrieved by the said order, the Revenue has come in appeal on the following grounds :
(a) Rule 49 deals with loss of goods in flood and fire etc. In the instant case the goods destroyed were not finished goods kept in a store room or any approved place of storage and hence Rule 49 of the CER is not applicable.
(b) Under the Modvat scheme, credit of duty paid on the inputs availed by the assessee can be utilized towards payment of duty for final product.
(c) Commissioner's order allowing credit of duty paid on the inputs for a non-existent final product is not proper and legal and it is against the Modvat Scheme.
(d) The Commissioner's reliance on the CEGAT's decisions are not relevant to the issue as fire accidents were not involved in those cases.
3. The learned DR reiterated the grounds of appeal and sought for allowing the department's appeal.
4. Smt. L. Mathili, learned Advocate for the respondents vehemently argued that the fact that the goods were destroyed in fire accident is not disputed by the department. She submitted that the Commissioner (Appeals) has passed the order impugned after a detailed analysis of the evidence on record and after taking into consideration the various case laws as cited in the impugned order and the impugned order needs to be sustained.
5. We have carefully considered the rival submissions and gone through the case records. We observe that in this case, the fact of destroying the goods by fire accident is not disputed by the department. The contention of the department is that Rule 49 is not applicable in this case because the goods destroyed were not finished goods kept in a store room or in approved place. We find that the proviso to Rule 49 lays down that the manufacturer is required to pay duty on any goods which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage. In the present case as already noted, there was no dispute that the goods were destroyed by fire. The survey report furnished by the surveyor appointed by the Insurance Company which is reproduced in the order in appeal clearly stated that the goods in the form of assembled and semi assembled circuit boards and electronics components viz. ICs Diodes, Contactors, relays etc. totally valued at Rs. 1,46,79,988.96 have been destroyed by fire accident and the damaged PCBs and electronic components do not have any commercial value and are useless. Therefore, the plea of the Revenue that Rule 49 is not applicable cannot be countenanced. The Revenue has also contended that the reliance by the Commissioner (Appeals)' on the CEGAT's decision is not correct as those decisions are not relevant to the facts of the present case since fire accidents were not involved in those case. We have no hesitation to record that the Revenue has taken this plea without going into the case laws relied upon by the Commissioner (Appeals). They should have gone through the case laws before taking such a ground. We observe that the Commissioner (Appeals) has rightly applied the ratio of the following decisions in this case :
(a) CCE v. Foods, Fats and Fertilizers Ltd. reported in 1989 (41) E.L.T. 277 (T) wherein it was held that exemption under Notification No. 118/75-C.E. is admissible when goods removed from place of production and intended for use in the manner specified even though lost due to destruction by fire.
(b) Larsen & Toubro Ltd. v. Assistant Collector of Central Excise reported in 1992 (61) E.L.T. 510 (Collr. App.) wherein it was held that Modvat credit cannot be reversed in respect of inputs actually issued and damaged in fire accident while in manufacturing process, whereas Modvat credit to be reversed only in respect of inputs not issued for manufacture but got damaged in fire, in terms of Rule 57A.
(c) Prem Pharmaceuticals v. CCE, Indore reported in 1996 (88) E.L.T. 278 wherein it was held that in respect of credit taken on bottles broken during handling, the demand for duty on such bottles is not justified, in terms of Rule 57D. It was also held therein that credit is not to be denied in terms of Rule 57D subject to the bottles being destroyed as per procedure under Rule 57F of the CE Rules.
(d) In the case of CCE, Aurangabad v. Glindia Ltd, reported in 1996 (87) E.L.T. 73 (T) wherein it was held that Modvat credit on broken glass bottles not to be denied in terms of Rule 57D.
6. As we have already observed, in this case, the fact regarding fire accident and goods having been destroyed as a result there of is not disputed. The department has also not contested the claim of the assessee that the inputs were destroyed after the inputs were actually issued. Further, there was also no allegation that there was any diversion of the goods elsewhere. In view of our discussion above, we are of the considered opinion that the Commissioner (Appeals) has come to a correct conclusion after analysing the evidence on record, that there was no warrant to reverse the input credit taken in this case and we do not find any reason to interfere with the order passed by the lower appellate authority. Accordingly, the Revenue appeal is dismissed.