Custom, Excise & Service Tax Tribunal
M/S Nectar Lifesciences Ltd vs Cce, Chandigarh-Ii on 26 April, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI PRINCIPAL BENCH, COURT NO. III Excise Appeal No. 534 of 2011-EX[DB] [Arising out of Order-In-Appeal No 50/CE/Chd-II/10 dated 1.12.2010 passed by Commissioner of Central Excise, Chandigarh II, ] For approval and signature: Honble Ms. Archana Wadhwa, Member (Judicial) Honble Mr. Rakesh Kumar, Member (Technical) 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether Their Lordships wish to see the fair copy of the Order? 4 Whether Order is to be circulated to the Departmental authorities? M/s Nectar Lifesciences Ltd. Appellants Vs. CCE, Chandigarh-II Respondent
Appearance:
Shri B.L. Narsimhan and Shri Anand Venkataraman, Advocates for the Appellants Shri N. Pathak, DR for the Respondent CORAM:
Hon'ble Ms. Archana Wadhwa, Member (Judicial) Hon'ble Mr. Rakesh Kumar, Member (Technical) Date of Hearing: 04.04.2013 Date of Decision: 26.04.2013 ORDER NO ./ FO 56185/2013-Ex(Br) Per Archana Wadhwa (for the Bench):
The appellant herein is engaged in the manufacture of excisable goods falling under Chapter 29 and 30 of the first schedule to the Central Excise Tariff Act, 1985. They were availing the Cenvat credit facility in respect of inputs, capital goods and input services, which was being utilized by them in the manufacture of their final products.
2. On 7.5.07, a fire broke out in the bulk drug plant of the appellant which resulted in the destruction of the stock lying therein, to the tune of around Rs.25 crores. The fact of fire incident was immediately brought to the notice of their jurisdictional Central Excise authorities by way of writing a letter to them on 8.5.07. For better appreciation, we reproduce the contents of the said letter :
We wish to inform you that yesterday there was fire in our Bulk Drugs Production area. The amount of loss incurred is not known presently. Details are being worked out.
This is for your information and records please.
3. Thereafter various letters were written by their range office in the month of June, July and August, 2008 requiring the appellant to produce documentary evidence of duty involved in respect of inputs, inputs lying in process and final product destroyed in fire. In response to said letter, the appellant vide their letter dated 25.8.08, intimated the Revenue that the entire material lost in fire was work in process material and as such, credit on the inputs which have been used in the manufacturing process and were lying at work in process stage is not required to be reversed. They also clarified that inasmuch as the goods had not reached the final stage, and as such cannot be held to be fully manufactured goods, no remission of duty is required to be availed. That explains as to why no application in terms of Rule 21 seeking remission of duty in respect of fully manufactured goods, stands filed by them.
4. It seems that subsequently, an audit was conducted in the factory by Headquarters at Chandigarh during the period 19.1.09 to 12.2.09. On scrutiny of the fire insurance claim filed by the appellant with M/so. United India Insurance Company, it was found that the total stock of loss was shown as Rs.25,11,70,548/-. The audit entertained a view that all the goods destroyed in the fire as such and not were inputs issued for the work in progress, the appellants are required to reverse the credit. Accordingly, the proceedings were initiated against the appellant by way of issuance of show cause notice dated 15.10.09 seeking confirmation of demand of duty of Rs.4,13,92,906/- on account of non-reversal of Cenvat credit. The said quantum of duty was arrived at by applying 16% rate of basic excise duty to the value of stock destroyed in the fire and not on the basis of actual credit availed by the appellant. Further, the said proposal was made by taking into account the value of the total destroyed goods including the goods available at work in progress.
5. The appellants strongly contested the above proposal of the Revenue by submitting that the fire broke out at the bulk drug unit and the goods destroyed were work in progress. The inputs after availing the Cenvat credit are stored in the inputs store, which is away from the factory and are issued and taken to the work floor for the purpose of further manufacture. As the fire broke in respect of the unit manufacturing the final product, it cannot be said that the inputs were destroyed, before the same were issued. Inasmuch as the goods destroyed were work in progress, and neither the inputs as such nor the final product, the Revenues proposal to seek reversal of credit is not justified. They contended that the Revenue has not verified the factual position before issuing the Show cause notice and as is clear from the chart, the various goods were at the first or second stage of the manufacturing process and were generated by various stages of manufacture. They also submitted that the straightway demand of an amount at the rate of 16.32% of the value of claim filed with insurance company for the loss of intermediate goods is not proper inasmuch as admittedly the goods had not reached the final stage and the Cenvat credit reversal cannot be arrived at by applying the rate of duty applicable on the final product. For the above proposition, they relied upon various decision of the Tribunal as detailed below:-
1. CCE vs. Indechem Electronics [2003 (1511) ELT 393 (Tri)]
2. Asian Paints vs. CCE [2004 (173) ELT 187 (Tri)]
3. Berger Paints India Ltd. vs. CCE Kolkatta [2006 (206) ELT 987 (Tri-Kolkatta)] The appellant also contended that the Revenue cannot invoke the provisions of Rule 3 (5B) and Rule 3(5C) for reversal of credit inasmuch as the said Rules are not applicable having been introduced in the legislation, after the date of incidence of fire. The appellant also assailed the impugned demand on the point of limitation by submitting that damage of goods was on 7.5.07 and the resultant loss of the goods was intimated to the Revenue immediately on 8.5.07 and as such, the show cause notice issued on 15.10.09 was hopelessly barred by limitation.
6. The above pleas of the appellant were not accepted by the Commissioner who by referring to the provisions of Rule 3(5B) and 3(5C) as also to the Boards circular No. 907/27/2009 CX dated 7.12.09, confirmed the demand of duty as proposed in the notice along with confirmation of interest and imposition of penalty of identical amount under Rule 15 of Cenvat credit Rules, 2004 read with Section 11AC of Central; Excise, Rules 19994.
7. Hence the present appeal.
8. We have heard both sides duly represented by Shri B.L/ Narasimhan learned advocate for the assessee and Shri N. Pathak, learned DR for the Revenue. .
9. After appreciating the submissions made by both the sides, we find that the fact of incidence of fire on 7.5.07, and the resultant loss of the goods is not being disputed by the revenue. Reading of the impugned order of Commissioner shows that the fact of goods destroyed being at various intermediate stages of the manufacturing process and hence being work-in -progress is also not been seriously doubted by him inasmuch as at some places he is referring to the goods as being work-in-progress.
However, he has confirmed the demand on all the destroyed items on the ground that some of the items mentioned in the chart related to table annexed to the show cause notice which in turn are picked up from their claim from insurance company reflects that these items were basically inputs. The appellants have clarified the above position by submitting that many of the items in the table relating to the lost material are of work-in-progress goods and reflects intermediate stage of the various inputs. The finding of the Commissioner that the list also contains name of the inputs, as such, stand arrived at by him without appreciating the fact that the goods have yet to reach the final product and the input as contained in the solution have been recovered to their original state during further processing. We are of the view that in view of the fact that fire was admittedly broke in the manufacturing section even if some of inputs were declared by their name, it does not lead to ipso factor conclusion that the same were not put to further processing in the manufacturing section. As such, without dealing in detail with the said contention, we proceed to decide the appeal on the basis of other submissions of the appellant.
10. Further, it is seen that mainly confirmation of the demand is by relying upon the provisions of Rule 3 (5B) and 3 (5C) of Central Excise Credit Rules as is clear from the following para of his impugned order:
21. I have carefully gone through these judgments of the Honble Tribunal. I find that all these judicial decisions pertains to the period prior to incorporation of Rule 3(5B) and 3(5C) in Cenvat Credit Rules, 2004. I find that the impugned SCN is based on these two Cenvat Credit Rules and Supplementary Instructions/ circulars issued by the CBEC in this regard. Rule 3(5B) has been incorporated in Cenvat Credit Rules on 11.5.2007 vide Notification No. 26/2007-CE (NT) dated 11.5.2007 and Cenvat credit Rule 3(5C) has been incorporated on 7.9.07 vide Notification No. 33/2007-CE (NT) dated 7.9.2007, whereas all the aforesaid judicial pronouncements of the Honble Tribunal pertain to the period prior to incorporation of these Cenvat Rules in Cenvat Credit Rules, 2004. Hence, these judgments of the Honble Tribunal do not come to their rescue.
11. Learned advocate has seriously refuted the above stand of the Revenue by submitting that Rule 3(5B) and 3(5C) were introduced with effect from 11.5.07 and 7.9.07 whereas the fire broke in the appellants factory on 7.5.07. As such, the reference and reliance on the said provisions, which were not even in existence on the date of fire are not justified. On this point, we find that the law declared by the Honble Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad vs. Intas Pharmaceuticals Ltd. [2013 (289) ELT 256], it stands held by the Honble High Court that the said provisions would be effective from the date when the same were introduced and there is no scope for reversal of credit if the final product becomes unfit for human consumption. The Honble High Court, in clear terms held that said provisions cannot be held to be retrospective in operation. For better appreciation we reproduce para 16 of the order 16. If we go through the provisions of the Rules relating to Cenvat, we find that prior to introduction of sub-rule (5C), there was no provision, which provided for reversal of the credit by the excise authorities where it has been lawfully taken by a manufacturer. Therefore, the credit accrued at the moment the raw material or the input was used in manufacturing of a final product which was neither exempt from duty nor carried nil rate of duty. Such being the provision, as it stood in the Cenvat Credit Rules prior to September 7, 2007, there is no scope of application of equitable doctrine against the assessee and in favour of the Revenue on the ground that it will amount to conferring of double benefit. The moment sub-rule (5C) was introduced, the Legislature made its intention clear that from the date of coming into force of the said amended rule, in case of future remission on the ground mentioned in the said sub-rule, in case of future remission on the ground mentioned in the said sub-rule, there will be reversal of the credit. Similarly the Honble Bombay High Court in the case of CCE, Navi Mumbai vs. Hindalco Industries Ltd. [2011 (272) ELT 161 (Bom)] involving inputs, spares and components destroyed prior to insertion of the said Rules, has held that since the case relates to the period prior to the insertion of the said Rules, credit was not liable to be reversed.
12. As admittedly the said provisions on which the Commissioner is very strongly relying upon were not in existence on the date of destruction of goods, we are of the view that invocation of the same was not proper and in accordance with the law.
13. We further note that the legal issue as regards reversal of credit is well settled. If the inputs, on which the credit stand availed were issued for further manufacture of the goods and goods are destroyed during the course of manufacture of the goods, no reversal of Cenvat credit is called for. For the above proposition, reference can be made to the Tribunals decision in the case of Commissioner of Central Excise and Customs, Pune vs. Spectra Speciality [2008 (231) ELT 346 (Tri-Mum)] as upheld by the Honble Supreme Court as reported in [2009 (240) ELT A 77 ]. To the same effect is another decision of the Tribunal in the case of Commissioner of Central Excise Chennai vs. Indchem Electronics [2003 (151) ELT 393 Tri-Chennai)] wherein it stand held that where inputs were actually issued and thereafter destroyed in fire accident, there is no requirement of reversal of Cenvat credit. The said decision also stands upheld by the Honble Supreme Court, when the appeal filed by the Revenue was dismissed, as reported in 2003 (157) ELT A 206 SC]. The list is unending and we do not feel any need to refer to all such decisions as the issue is almost settled.
14. As such, in the light of the said decision as detailed above, the factual position, as disputed by the Revenue, is required to be ascertained. Whereas the Revenue is contending that it was actually the inputs which were destroyed, the appellants stand is that it was the work-in-progress, which was destroyed in the fire. We note that the appellant, right from their first letter onwards, in all their communications addressed to the Revenue, have repeatedly submitted that the fire broke out in the bulk drug unit of the appellant, which unit is located in the manufacturing section. Inasmuch as the bulk drug manufacturing section of the plant is away from the stores, where the inputs were stored, the said fact itself establishes that the inputs had been issued for manufacturing and were work in progress. It is seen that the Commissioner has referred to the appellants claim made before the insurance company, wherein description of the goods stand given by them and has concluded that inasmuch as the goods described by the name of the inputs, on which credit was availed, it has to be held as if the inputs were destroyed. However, this stand explained by the learned advocate appearing for the appellant, that during the process of manufacture, there are various recoveries of the same inputs, which are again used at the manufacturing floor. We find that without referring to the technical details, we note that there is no dispute about the fact that input store is situated at a place different than the bulk drug manufacturing section of the plant. Learned advocate has produced before us the approved ground plant which reveals that the manufacturing unit, where drugs are being manufactured is separate from the stores, formulation unit, solvent storage etc. There is a dividing road between the bulk drug manufacturing section and the store meant for storing inputs which is around 20 feet wide road. If that be so, it has to be concluded that goods which are destroyed in the fire in the bulk drug manufacturing section were the goods which have already left the inputs store and as such, same cannot be considered to be inputs destroyed as such, so as to call for reversal of Cenvat credit. The bulk drugs are manufactured and marketed in the batches and the inputs are issued for production on the basis of issue slips corresponding to batches that are to be manufactured. Mostly the inputs are various chemicals which are consumed. The said goods were admittedly work-in-progress, in which case, no reversal of credit is justified. There is clearly no evidence on record to substantiate Revenues allegations and findings that the destroyed goods were actually inputs, which were not issued for further manufacturing.
15. As such, we are of the view that the impugned order of Commissioner confirming reversal of credit and imposition of penalty on the appellant is not sustainable.
16. Though, we have held in favour of the appellants on merits, we also note that the demand having been raised after a period of around two years from the date of incidence of fire and consequent destruction of goods is hopelessly barred by limitation. Revenue is not disputing that the fact of fire was intimated to them on the next date. The Revenues stand that inspite of repeated reminders, the appellant did not provide the detailed list of the destroyed goods and as such, invocation of extended period is justified cannot be appreciated. The jurisdictional Central Excise authorities are expected to visit the factory of the assessee within a period of 24 hours in case of any report of fire incident and are required to assess the losses. Though we note that the appellant had been responding to all the communications of the Revenue, but presuming that they were not, the Revenue was within their right and power to issue summons to the appellants to call for such details or to visit their factory to find the exact losses. As such, we find no merits in the Revenues stand of invocation of longer period.
14. As a result of foregoing discussions, the appeal is allowed on merits as also on point of limitation and impugned orders is set aside.
(Pronounced in the open court on )
( Archana Wadhwa ) Member(Judicial)
( Rakesh Kumar ) Member(Technical)
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