ORDER
S.S. Sekhon, Member (T)
1. Appellants are an assessee under the Central Excise Act and avail Modvat Credit on inputs received & used in manufacture of final products. Certain fire accident took place in appellants factory on 21.02.96, the fire report confirmed that raw material & finished products viz paints, thinners etc were damaged in this fire. The lower authority found.
i) Modvat Credit availed on inputs, but which had not used in or in relation to the manufacture of the final products, but were lost in fire was not admissible.
ii) Credit on inputs in work-in process was not available since they did not result in any final product, having been lost in fire. Therefore the credit could be recovered under Rule 57 I & the rule 173 Q & a demand of Rs. 39,73,208.16 was confirmed along with interest under Section 11 AA of the Central Excise Act, 1944 & penalty of Rs. 25 lakhs under Rule 173 Q was imposed.
2) The CCE(A), after hearing the appellants found–
i) Rule 57 D cannot assist the appellants
ii) Rule 57 I(1)& (2) would be applicable
iii) Credit on inputs actually used or issued for manufacturer & lost thereafter due to fire was eligible.
iv) Credit has to be reversed on inputs which was not used & utilized/ in the manufacture of final product issued for use was not eligible & was to be reversed
v) There is no malafides & penalty under Rule 173 Q was not called for & was set aside.
3. Hence this appeal No. E/490/03 by appellants
4. Revenue being aggrieved by the low penalty of Rs. 25 lakhs only & interest not demanded under Section 11 AB by the original authority had filed an appeal before CCE(Appeal) who found no reason to interfere on basis of Revenue appeal, finding the loss to be due to natural causes. As regards interest under Section 11 AB he found as follows:-
As regards application of Section 11 AB, to the amount of Rs. 1,39,73,208.16 determined vide impugned order, I find that the destruction of inputs by fire took place in Feb. ‘1996, it was open to assessee to work out and reverse the said duty at that time only. They chose not to do so. The department issued demand which came to be adjudicated in September 2001. Meanwhile the credit lying in balance on 01.07.2001 was transferred as Cenvat Credit vide Rule 9 of Cenvat Credit Rules 2001, and the recovery of Cenvat credit came to be governed by Rule 12 ibid, vide said rule provisions of Section 11 A and Section 11 AB of the Act apply mutatis-mutandis for recovery of cenvat credit. Thus the demand having been confirmed under Sub-section (2) of Section 11 A of the Act, the provisions of Section 11 AB automatically apply. The argument of assessee that only provisions of Section 11 AA apply in this case is devoid of any merit. As a matter of fact, the provisions of Section 11 AA of the Act have become otiose by the amendment of Section 11 AB w.e.f. 11.05.2001 as the amended Section 11 AB is applicable to all cases of delayed payment. The distinction made earlier in the Act, between simple delay in payment beyond three months and fraudulent short payment and evasion etc. has been done away with.
In view of the aforesaid finding that provisions of Section 11 AB of the Act are applicable in the instant case, the Revenue will be adequately compensated for the monetary loss suffered and there is no need to compensate Revenue any further by enhancement of penalty as pleaded in the application filed by the Revenue
Hence appeal No. 1291/02 by assessee
5. Revenue, has pled the appeal No. E/1051/03 against the CCE(Appeal) against the grant of Credit eligibility on inputs lost while at the stage of work-in-process & lost due to fire cannot be covered under rule 57 D & they were not used in relation to final products & no dutiable product emerged from there & the assessee was to be held liable to penalty
6) Revenue filed appeal No. E/1052/03 against the order of CCE (Appeals) in not enhancing the penalty under Rule 173 Q prayed for & set aside by him.
7) Appeal No. E/1946/00 has been filed by the assessee against the dismissal of the application for remission of duty made under Rule 49 of the Central Excise Rule 1044 for the loss due to fire on 21.2.96 the dismissal of the Section 49 application on the grounds the application seeks remission on Raw material, in process goods, capital goods, packing material as well as finished & the provision is only for finished goods & not on other goods.
8) These appeals are being disposed off by this common order since they emerge from same issue viz eligibility to credit on inputs etc lost in a fire accident in the factory. On considering the various submissions made, it is found.-
a) Modvat Credit can be taken on receipt of the inputs in the factory and such credit availed or utilized in an irregular manner can be recovered as per provision of Rule 57 I (1) as applicable on day of the fire i.e. 21.02.96 Rule 57 I(1) is not applicable as invoked, on taking of credit, that could not be questioned, on date it was taken. The eligibility could not be doubted in any manner Rule 57 I (2) provides for accounting & untilisation and disposal of the inputs in the manner specified under that rule. Once the inputs are issued to the manufacturing floor, from the stores after receipt in the factory, the further utilization of the same cannot be normally questioned. They can be lost due to normal process of a technological loss reversals are therefore not called for. The Ld Commissioner has relied upon the cantena of decisions that grant the eligibility if the inputs loss in & during work in progress. It has to be held that loss containing final products the inputs or waste due to processing loss or natural causes or by an accident would be due, accountal of the goods the term accounted for ‘used in the Rule 571 (2) would encompass a satisfactory recital of consumption which is not a diversion of the inputs for other commercial gains. No reason is found to deviate from the finding arrived at by Ld CCEC(Appeals) on this account of accepting these loss of inputs as work in process or in final product to be ‘accounted for’. As regards inputs lost in fire which were not issued, the Ld CCE(Appeals) orders of ordering reversals of credit therein cannot be also found fault with looking at the catena of decisions. Reliance placed by the Ld CCEC(Appeals) on the case laws is well founded & followed.
b) Following Supreme Court’s decision in Raghuvar India CCE, Jaipur v. Raghuvar (India) Ltd 2000(118) ELT 311 (SC) (Modvat Credit is not duty and reversals determined under Rule 57 1(2) cannot be equated with duty demands, interest under 11 AB as being read by Ld CCE (Appeals) moreover as Rule 57 1(5) has in built provision to recover interest as prescribed under Section 11 AA. The orders on recovery of interest under Section 11 AB cannot be upheld.
c) The fire was a result of an accident beyond the control of the appellants is not in dispute and Remission under Rule 49 of the Central Excise Rules, 1944 is called for on reading proviso Rule 49 (1) first proviso to Rule 49
d) The term “any goods” could extend to raw material, capital goods, unfinished goods, and finding on that have to be have arrived. The Commissioner has to arrive at a finding on the scope of these proviso. The order is therefore set aside & remitted to the Commissioner to re hear the appellant & redetermine the application for remission.
e) The penalty under Rule 173 Q has been rightly set aside by the Ld CCE(Appeals) since Rule 571 (4) provides that penalty could be arrived at only if the ingredients therein are satisfied. In the present case the appellants have been found to be not having any malafides & therefore the penalty set aside Vide order No. RJB/M-II/179/2000 dt 10/12/2002 against which no appeal has been filed or grounds of malafides taken in appeal no E/1052/03 by Revenue. In any case on the facts & circumstances of the case, i.e. loss of goods in fire that is found to be an accident is not called for.
9) The appeals are therefore in view of our findings ordered to be dispossed off as follows:-
i) E/490/03 dismissed.
ii) E/1291/02 dismissed
iii) E/1051/03 dismissed
iv) E/1052/03 dismissed
v) E/1946/00 allowed as Remand.
Ordered accordingly.
(Pronounced in Court on 25/06/2004