Full Judgment
2. The appellant has challenged the order dated 20.12.06 of the Commissioner to the extent to which he has imposed condition of reversal of cenvat credit taken on inputs used in the manufacture of P or P medicines proposed to be destroyed.
3. A stock of PP medicines was claimed by the appellant as unfit for consumption and marketing. Remission of Central Excise duty was, therefore, sought in respect of the stock proposed to be destroyed. The Commissioner finding that it was unfit for consumption and marketing because the medicines had crossed their expiry dates, held that this was fit case for remission of excise duty on the stock of expired P or P medicines. Accordingly, remission of duty amount of Rs. 5,11,822/- has been allowed under Rule 21 of the Central Excise Rules, 2002 subject to the condition that the destruction of medicines was to be supervised.
4. The learned Authorised Representative for the appellant Mr. S.K.Jain, has contended that imposition of such a condition of reversal of cenvat credit taken on inputs was contrary to the ratio of the decision of the Larger Bench in Grasim Industries v. CCE, Indore in Excise Appeal No. 925/2006 decided on 7.8.2006.
5. The learned Authorised Representative for the department supported the reasoning of the Commissioner (Appeals) and relied upon the Circular of the Board issued on 1.10.04 in which it was clarified that credit of excise duty paid on inputs used in the manufacture of finished goods on which the duty has been remitted due to damage or destruction etc. is not permissible and interest should be recovered.
This Circular No. 800/33/2004-CX dated 1.10.04 was issued on the basis of ratio of decision of the Tribunal in Mafatlal Industries Ltd. v.CCE, Ahmedabad Industries Ltd. has been over-ruled by the decision of Larger Bench in Grasim Industries (supra) in which the Larger Bench held that reading of the Rules under which remission is granted in respect of goods which were damaged or destroyed by natural cause or by unavoidable accident, does not provide any condition regarding reversal of credit taken in respect of inputs used on such goods. The Larger Bench did not agree with the view taken in Mafatlal Industries in which it was held that assessee had to reverse the credit taken on the inputs used in the goods on which the remission is granted. The Larger Bench approved the view taken in Inalsa Ltd. v. CCE, New Delhi , in which it was held that in case where remission of duty is granted in respect of goods destroyed in fire, modvat credit on inputs used in the manufacture of goods need not to be reversed. It is obvious that the ratio of the decision in Mafatlal Industries Ltd. (supra) stands over-ruled by the decision of Larger Bench in Grasim Industries. The Circular of the Board issued on 1.10.04 on the basis of ratio of Mafatlal Industries has therefore, become ineffective and cannot be relied upon by the Revenue as it flies in the face of the ratio of the decision of the Larger Bench in Grasim Industries (supra).
6. For the foregoing reasons, the condition imposed in the impugned order requiring reversal of cenvat credit taken on inputs used in the manufacture of P or P medicines proposed to be destroyed cannot be sustained and is hereby set aside. The impugned order, is accordingly, modified.