JUDGMENT
T.K. Jayaraman, Member (T)
1. This appeal arises from Order-in-Original No. 17/2002 (Commr.) dated 16.12.2002 passed by the Commissioner of Central Excise, Belgaum
2. The brief facts of the case are as follows:
The appellants avail modvat/cenvat credit on imports and capital goods. Revenue proceeded against them on the ground that the credit availed in respect of goods damaged in transit/storage/erection/fire or lost or stolen goods is not in order, especially when they were claiming insurance. It was pointed out that the above goods were not at all used in the manufacture of final products. The details of the demands confirmed as are follows:
a. The total demand constitute Rs. 46,56,143/-. This amount is for the period from 1/1997 to 11/2000. the Adjudicating Authority has invoked Ist Proviso to Section 11A(1) read with Rules 57AH(1).
b. A penalty of Rs. 8,43,509/- has been imposed under Section 11AC read with Rule 57AH(2) of the CE Rules 1944. A penalty of Rs. 50,000/- has been imposed under Rule 173Q of CE Rules 1944.
c. Interest under Section 11AB has been demanded on the entire amount confirmed.
The appellants have strongly challenged the impugned order. Hence they have come before this Tribunal for relief.
3. Shri S. Nagaraj and T.R. Sastry, learned Advocates appeared for the appellant and Shri Ganesh Havanur, learned SDR appeared for the Revenue.
4. The learned Advocate made the following submissions.
(i) The goods were damaged in transit/ during erection/use at site or in storage or in fire. The appellants claimed insurance for the value of the goods or cost of repairs of the goods received in damaged condition. All the goods are inside the factory only, hence, there would not be any duty liability. The demand of duty on the goods which are still within the factory is rather pre-mature.
(ii) There is no time limit for use of capital goods or inputs. The liability to pay duty arises on removal from the factory. Hence, the demand is not correct in law.
(iii) The case law of Bharat Heavy Electricals Ltd. v. CCE, Bangalore – 2002 (50) RLT 208 (BEGAT-Ban.), wherein it is held that when the inputs are lying in the factory the credit is not deniable on the grounds that the inputs have been written off in the books of accounts and on the presumption that the inputs may not be used since there is no time limit for consumption of inputs.
(iv) He further relied on the following rulings:
(a) CCE, Indore v. Kinetic Motors Co. Ltd. –
(b) Jindal Polyster Ltd., Gulaothi v. CCE, Meerut – 2001 (78) ECC 488 (Tr.)
(c) Ashok Ley land Ltd. v. CCE, Chennai – 2002 (149) EL T 1096 (CEGA T-Ceh.)
(d) CCE, Chennai-III v. Indchem Electronics – .
(v) It was submitted that at the insistence of the Department, the appellants deposited an amount of Rs. 7,54,753/- in the cenvat account. This amount of Rs. 7,54,753/- has neither been demanded nor appropriated in the impugned order, hence there was a prayer for refund this amount.
5. The learned SDR reiterated the Order-in-Original he said that the goods, which are damaged or destroyed, would not be used in the manufacture of final products, hence they are not entitled for modvat credit. Therefore the modvat credit taken should be reversed. Hence the Order-in-Original is to be upheld.
6. We have gone through the records of the case carefully. Some of the goods, which have been received in the factory, are damaged on account of various reasons. It is true that these goods have been insured. The fact that these goods are still inside the factory is not disputed. In cases, where the goods are repaired there is a possibility of their being put to use in the manufacture of the final products. In those cases, where the goods are to be removed, at the time of removal duty payment/reversal of credit should be carried out in accordance with Central Excise Law. In these circumstances, we find that the demand of duty on the credit taken is pre-mature. As there is no malafide, imposition of penalty is not justified. Hence, we set aside the Order-in-Original and allow the appeal with consequential relief, if any.
(Pronounced in open COurt on 02.12.2005)