Custom, Excise & Service Tax Tribunal
Hinduja Foundries Ltd vs Commissioner Of Central Excise on 4 July, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.E/41370/2014
[Arising out of Order-in-Appeal No.44/2014 (M-I) dated 08.04.2014 passed by the Commissioner of Central Excise (Appeals), Chennai]
Hinduja Foundries Ltd.
Appellant
Versus
Commissioner of Central Excise,
Chennai-I Respondent
Appearance:
Shri M. Kannan, Advocate For the Appellant Shri K. Veerabhadra Reddy, JC (AR) For the Respondent CORAM:
Honble Shri P.K.Choudhary, Judicial Member Date of hearing : 03.06.2016 Date of Pronouncement : 04.07.2016 FINAL ORDER No.41061/2016 This appeal has been directed against Order-in-Appeal No. 44/2014 (M-I) dated 08.04.2014 passed by Commissioner of Central Excise (Appeals), Chennai. The issue relates to denial of capital goods credit on the spare parts, purchased by appellant for replacement of damaged parts caused due to a fire accident in 2006.
2. The brief facts of the case are that M/s.Hinduja Foundries Ltd., the appellant herein, are engaged in the manufacture of Cast Articles of Iron and Aluminium falling under Chapters 73 and 76 respectively of the Schedule to CETA 1985. The castings are principally for manufacturing of motor vehicle parts. They availed credit for excise duty paid on inputs and capital goods. On 06.01.2006, a fire accident occurred in the appellant's Shoot Squeeze Auto Moulding Plant, which was imported by the unit from Frix Hansburg, Italy in 1991. Appellant claimed compensation from M/s.Oriental Insurance Co.Ltd. Chennai on which duty element involved on lost capital goods was worked out to Rs.2,97,536/-. The appellant was issued a SCN dt. 7.2.2011 proposing to demand the credit involved under Rule 14 of CCR 2004 read with proviso to Section 11A (1) of Central Excise Act along with interest and proposing to impose equal penalty under 15 (2) of CCR 2004 read with Section 11AC of the Act. The adjudicating authority, after due process of law, vide OIO No.22/2011 dt. 23.12.2011 confirmed the proposals made in the SCN. On appeal, the learned Commissioner (Appeals) rejected the appeal filed by the appellant and upheld the OIO. Hence the present appeal before the Tribunal.
3. Shri M. Kannan, Ld. Advocate submits that the original capital goods were purchased in the year 1991 and no modvat credit scheme was available at that time. He submits that there was no irregular availment of credit inasmuch as the impugned machineries were installed in 1991 when there was no modvat scheme available. Since the goods purchased in 1991 were lost in fire accident in 2006, the question of availing irregular credit or removal of capital goods outside the factory does not arise. After the fire accident, appellants got compensation from the insurance company which included the excise duty component. He further submits that the insurance compensation has nothing to do with the credit availed on spare parts purchased in the year 2006 as they have not availed capital goods credit on the equipment imported in 1991. The spare parts purchased in 2006 are covered under Central Excise Rules, 2000. There is as such no provision to deny this credit on the plea that appellants could not avail credit on the original equipment as no credit scheme was in force. He relies on the case law in CCE Bangalore Vs Tata Advanced Materials Ltd. 2011 (271) ELT 62 (Kar.) which upheld the Tribunal's order in Tata Advance Materials Vs CCE Bangalore 2009 (241) ELT 92 (Tri.-Bang.) holding that the assessee is not liable to reverse the cenvat credit for the goods destroyed.
3. Ld. AR reiterated the findings of the adjudication order. He submits that parts were imported to repair the old damaged capital goods; that the process of importation and repair does not amount to 'manufacture' of the final product. He submits that by receiving the insurance claim, the appellant got double benefit which is not permissble.
4. As a rejoinder, the ld. counsel submits that findings recorded in the order are beyond the scope of SCN and submits that the issue already stands settled by Hon'ble Karnataka High Court as well as Tribunal's ruling referred to supra. Therefore, he prays that the appeal may be allowed on merits.
5. Heard both sides and examined the records.
6. On perusal of the OIA, at para-9 of the OIA, I find that the credit was disallowed only on the premise that the original equipment was purchased in 1991 when no credit scheme was in force. It is an undisputed fact that there was no such provision in Cenvat rules for denial of capital goods credit on the parts imported for replacement, particularly during that period original equipments were not covered under modvat scheme. The assessee has paid the premium for insurance which covered the risk of the capital goods. The insurance company in terms of the policy agreement, has compensated the assessee with the value of goods destroyed in fire, including the excise duty paid by them. The Compensation scheme from the insurance company has no relevance for availment of credit on capital goods purchased in 2006. The fact that the appellant claimed insurance, which is inclusive of Excise Duty, is not at all relevant.
I find from the decision relied upon by learned counsel in the case of CCE Bangalore Vs Tata Advanced Materials Ltd. (supra), the Hon'ble Karnataka High Court has dealt a similar issue on hand, in detail, and by following the Hon'ble Supreme Court's judgement in Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd. reported in 1999 (112) E.L.T. 353 (S.C.), allowed the appeal of the assessee. The relevant paragraphs 5 & 6 of the Hon'ble Karnataka High Court judgement are reproduced as hereunder :-
"5. The Supreme? Court in the case of the Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd. reported in 1999 (112) E.L.T. 353 (S.C.) at para 17 held as under :-
"17. It is clear from these Rules, as we read them, that a? manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken. in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit-can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
6. Therefore, it is clear that there is no provision in the rules which provides for a reversal of the credit by the Excise Authorities except where it has been irregularly taken in which event it stands cancelled or if utilised has to be paid for. This is not the case of the revenue. In the instant case, when the assessee purchased the capital goods and when he has paid the excise duty on them, in law, he is entitled to get the credit on the duty paid while clearing the finished products from his factory. Accordingly, he utilised the cenvat credit and cleared the finished products. It is about three years after such payment, the capital goods were destroyed in fire. As the assessee had insured the said capital goods, he put forth a claim for payment of the loss sustained by him, which includes the payment of excise duty. The Insurance Company in terms of the policy has compensated the assessee. Merely because the Insurance Company paid the assessee the value of goods including the excise duty paid, that would not render the availment of the cenvat credit wrong or irregular. At the same time, it does not confer any sight, on the Excise Department to demand reversal of credit or default to pay the said amount. The assessee has paid the premium and covered the risk of this capital goods and when the goods were destroyed in terms of the insurance policy, the Insurance Company has compensated the assessee. It is not a case of double payment as contended by the department. At any rate, the Excise Department has no say in the instant case as held by the Apex Court. In that view of the matter, the substantial questions of law framed in this appeal are answered in favour of the assessee and against the revenue. Accordingly, the appeal is dismissed."
The above ratio of the Hon'ble High Court is squarely applicable to the facts of the present case. Respectfully following the same, the impugned order is set aside and the appeal is allowed.
(Order pronounced in open court on 04.07.2016) (P.K.CHOUDHARY) JUDICIAL MEMBER gs 7