Custom, Excise & Service Tax Tribunal
M/S Total Oil India Pvt. Ltd vs Cce Belapur on 10 October, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPLICATION NO. E/S/1961/10
IN APPEAL NO. E/1815/10 - MUM
(Arising out of Order-in-Appeal No. PKS/204/BEL/2010 dated 27.07.10 passed by the Commissioner of Central Excise (Appeals), Mumbai III)
For approval and signature:
Honble Shri. P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
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 : Yes
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
M/s Total Oil India Pvt. Ltd.
Appellant
Versus
CCE Belapur
Respondent
Appearance Shri Vinod Awtani, C.A for Appellant Shri V.K. Aggarwal, Addl. Commissioner (A.R.) for Respondents CORAM:
Shri. P.R. Chandrasekharan, Member (Technical) Date of Hearing : 10.10.2011 Date of Decision : 10.10.2011 ORDER NO.
Per P.R. Chandrasekharan The appeal and stay application are directed against order-in-appeal No. PKS/204/BEL/2010 dated 27.07.10 passed by the Commissioner of Central Excise (Appeals), Mumbai III.
2. The facts arising for consideration in this case are as follows:-
2.1 M/s. Total Lubricants India Ltd. had availed CENVAT credit on various inputs or capital goods received in their factory. The said goods were destroyed in a heavy flood which had taken place on 26th July, 2005. The appellant had received a sum of Rs.1,39,69,851/- towards insurance claim on the subject goods excluding VAT and CENVAT and the said claim included an amount of Rs.27,77,437/- on account of loss of capital goods on which CENVAT was availed. Accordingly, a show-cause notice dated 01.10.2008 was issued demanding recovery of CENVAT credit of Rs.4,91,810/- on the depreciated value of the capital goods in terms of Notification No. 39/2007-CE (T) dated 13.11.2007. The notice was adjudicated by the jurisdictional Asst. Commissioner and vide Order dated 20.04.2009 disallowed the CENVAT credit of Rs.4,91,810/- under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944. Vide the said order the adjudicating authority also confirmed the demand for recovery of interest at the appropriate rate on the said CENVAT credit disallowed and also imposed an equivalent penalty under Section 11AC. The appellant preferred an appeal before the Commissioner (Appeals) against the said order. The Commissioner (Appeals) vide the impugned order confirmed the demand for recovery of CENVAT credit of Rs.4,53,278/- under the provisions of Section 11A (1) of Central Excise Act, 1944 and also imposed an equivalent penalty under Section 11AC. The revised demand of Rs.4,53,278/- arrived at by taking the value of the capital goods at Rs.27,77,437/- which was the amount received from the insurance company on account of loss of capital goods. The appellant are before me against the impugned order.
3. The learned Counsel for the appellant submits that the capital goods were destroyed in flood which occurred on 26th July, 2005 and this fact had been intimated to the department at the relevant time. The capital goods were in use by the appellant and one of the capital goods was purchased on 02.03.2001 and was in use for a period of more than four years and another capital goods was purchased in 2004 and was in use for more than a year when the loss took place. Therefore, they have not violated any of the terms and conditions of CENVAT Credit Rules, 2004. Due to the flood, the capital goods were completely destroyed and they became waste and scrap and the goods were cleared by the appellant on 28th March, 2006, for a value of Rs.1,60,000/- and discharging a duty liability of Rs.26,612/-. There is no provision in the CENVAT Credit Rules, 2004 for reversal of credit taken when the capital goods are lost on account of natural calamities. In as much as the capital goods were damaged and became waste and scrap, the same were cleared as waste and scrap by discharging excise duty at the appropriate rate. The Counsel relies on the decisions of the Tribunal in the case of Motor Industries Co. Ltd. vs. CCE Bangalore 2004 (167) ELT 242 (Tri. Bang.) wherein it was held that in respect of capital goods destroyed in fire and cleared waste and scrap on payment of duty, CENVAT credit was not reversible as per Rule 57S(2)(c) of erstwhile Central Excise Rules, 1944. Similar view was taken by this Tribunal in the case of Tata Advance Materials vs. CCE Bangalore I 2009 (241) ELT 92 (Tri. Bang.) and also in the case of Mayur Dye Chem Intermediates Ltd. vs. CCE Ahmedabad 2009 (244) ELT 131 (Tri. Ahmd.). The Counsel further points out that this Tribunal in the case of CCE Mumbai IV vs. Ratnatraya Heat Exchangers Ltd. 2011 (269) ELT 419 (Tri. Mumbai) had held that insurance claim received from the insurance company cannot be treated as a consideration for the goods destroyed and if the goods are sold as waste and scrap, only the value received for such sale should be considered for payment of duty. In the light of these submissions the Counsel prays for waiver of pre-deposit.
4. The learned A.R for the Revenue reiterated the findings given by the lower appellate and the adjudicating authority.
5. I have considered the rival submissions. As the issue lies in a narrow compass, after granting stay, I take up the appeal itself for disposal.
6. In the instant case, there is no dispute that the capital goods were put to use and when the goods were in use, the floods happened and the capital goods were damaged and they could not be put to use. In as much as the capital goods became waste and scrap, the appellant cleared the same on payment of duty applicable to waste and scrap on the transaction value. Rule 3 (5A) of the CENVAT Credit Rules, 2004 provides that if the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on the transaction value. In the instant case that is what has been done by the appellant. On the other hand the department seeks to arrive at the CENVAT credit required to be reversed by following two methods. While the Asst. Commissioner has arrived at the value by providing depreciation for the period of use and has confirmed the demand of Rs.4,91,810/-, the appellate authority has treated the insurance amount received as the consideration for the capital goods and have arrived at the demand by applying the rate of duty on the said amount. As rightly pointed out by the learned Counsel for the appellant, this Tribunal in the case of Ratnatraya Heat Exchangers Ltd. (supra) held that the amount of compensation received from the insurance company was in relation to the damaged suffered by the appellant and it cannot be treated as a consideration for the sale of goods which was sold as scrap. Therefore, there is no basis to treat the compensation received from the insurance company as the value of the capital goods cleared as waste and scrap and the appellate authoritys order in this regard is unsustainable in law. As regards the quantification done by the jurisdictional Asst. Commissioner based on the depreciation method, provision for determining the value of capital goods when cleared after usage was introduced in the CENVAT Credit Rules, 2004 by a Notification No. 39/2007-CE (N.T) dated 13.11.2007. In the instant case, the damage occurred in 2005 and the capital goods were cleared as waste and scrap in 2006. At the relevant time there was no provision based on the depreciation method. Therefore, the order passed by the adjudicating authority is also untenable in law. Further this Tribunal in the case of Motor Industries Co. Ltd. cited (supra) held that where the capital goods became waste and scrap by use over time and in case where such goods became waste and scrap because of fire accident, there was no provision for making proportionate reversal of MODVAT credit. Similarly in the case of Tata Advance Materials (supra) this Tribunal held that there was no provision for demanding CENVAT credit taken on the capital goods when they were put to use and subsequently destroyed due to fire accident. Thus, there was no provision in the law at the relevant time for reversal of CENVAT credit availed on capital goods if the same were destroyed due to natural calamities.
7. In the light of foregoing discussion, the demands confirmed by the adjudicating and the appellate authorities are unsustainable in law and are set aside.
8. Thus the appeal is allowed with consequential relief, if any. The stay application is also disposed of accordingly.
(Dictated in Court) (P.R. Chandrasekharan) Member (Technical) nsk 7