CEA No.22 of 2006 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CEA No.22 of 2006 DATE OF DECISION: February 24, 2010 COMMISSIONER OF CENTRAL EXCISE, ...APPELLANT CHANDIGARH VERSUS M/S AAGOSH POLY FOAM, 40 INDUSTRIAL ...RESPONDENT AREA, PHASE-II, CHANDIGARH. CORAM: HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA. HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR. PRESENT: MR. KAMAL SEHGAL, SR.STANDING COUNSEL FOR THE APPELLANT. MR. AKSHAY BHAN, ADVOCATE FOR THE RESPONDENT. ASHUTOSH MOHUNTA, J.(ORAL) The Revenue has impugned the order (Annexure A-3) passed by the Customs, Excise and Service Tax Tribunal (for short 'the Tribunal') vide which the appeal filed by the Department was dismissed and the respondents was held entitled to claim Cenvat credit on the finished/semi- finished goods which were destroyed in a fire. The respondent is engaged in manufacture of Polyurethane Foam and articles thereof falling under Chapter 39 of the Central Excise Tariff Act, 1985. They had been availing of the benefit of Modvat/Cenvat credit on duty paid input materials received in their factory for used of the manufacture of final product. On 20.1.1999, a major fire broke out in the factory premises of the respondent in which finished as well as semi- finished goods were destroyed. The respondent availed of the Cenvat credit CEA No.22 of 2006 -2- on the inputs which were used in the manufacture of goods which were destroyed in fire. However, a show cause notice was issued by the adjudicating authority wherein the respondent was asked to refund back the Cenvat credit availed by them on the ground that as the final product was never sold, hence, they were entitled to claim Cenvat credit. The adjudicating authority decided the show cause notice in favour of the Revenue and against the assessee. In appeal, the Commissioner (Appeals), however, set aside the order passed by the adjudicating authority and held that as the inputs were destroyed in the fire, which fact was not disputed by the Department, therefore, the manufacturer was entitled to avail of Cenvat credit under the provisions of Rules under Central Excise Rules, 1944. It was thus, held that Cenvat credit has rightly been claimed by the manufacturer. The appeal filed by the Revenue was dismissed by the Tribunal vide impugned order Annexure A-2. The short question involved in the present appeal is as under:- “Whether the Cenvat/Modvat credit is allowable on the inputs contained in the finished goods, which have been destroyed in fire, particularly when the credit taken has already been already utilized while making payment of duty on the manufactured goods, cleared earlier.” A perusal of the aforementioned facts clearly shows that the manufacture had used the inputs on which the duty had been paid in the manufacture of their final product. Once the product was used, then they were entitled to claim Cenvat credit on the same. In Commissioner of Central Excise, Bangalore vs. Tulsyan Nec Ltd., reported as 2007(207) ELT CEA No.22 of 2006 -3- 209 (Kar.), it has been held that the assessee is entitled to claim Cenvat credit on the inputs destroyed in a fire accident, but in the event of settlement by the insurance company, they would remit the benefit back to the Department. In (2004) 173 CLT 187, it was held by the Tribunal that in the event of inputs being lost in fire, duty credit recovered on account of destruction can be made over to the assessee. In view of the above, we are of the considered opinion that claim of Cenvat credit on the inputs, used in the manufacture of final product and which were destroyed in the fire, could be availed of by the manufacturer. However, in case of settlement with regard to the amount of Cenvat credit received by the manufacturer, then they shall remit the same back to the Department within a period of three months from the date of settlement with the insurance company. The orders passed by the Commissioner(Appeals) as well as the Tribunal are modified to the above extent. The question of law is answered in favour of the assessee, subject to the modification indicated above. Appeal is disposed of. (ASHUTOSH MOHUNTA) JUDGE February 24, 2010 (MEHINDER SINGH SULLAR) Gulati JUDGE