Mafatlal Industries Ltd. Vs. Commr. of C. Ex. and Customs - Court Judgment

Excerpt:
1. shri j.c. patel, learned advocate for the appellants states that the appellants have provided fire fighting equipments in their factory and they have also trained their personnel for fire fighting to deal with fire accidents. however, on 11-3-1999 a fire broke out in the appellants' factory premises and despite the fire brigade arriving within a few minutes there was some loss of the finished goods in the fire. he states that the excise authorities and police were also intimated. the new india insurance company ltd. have drawn a survey report and have settled the claims regarding the burnt/damaged goods which does not include duty. the appellants were issued a show cause notice demanding central excise duty of rs. 44,33,998/- on the finished goods burnt/damaged in the fire and also another amount of rs. 2,28,834/- representing modvat credit on the inputs contained in such burnt/damaged goods. he states that the commissioner has confirmed these duty demands and has also imposed equivalent amount of penalty apart from charging interest at the of 24% on the ground that the benefit of remission of duty cannot be granted as the appellants have no proof that the fire had taken place due to natural cause or unavoidable accident. he cites the following case laws in support of his contention that remission of duty should be granted to the appellants :- (2) commr. of cus. jcd, new delhi v. shree balaji garments inds. -2000 (122) e.l.t. 569 (tri.)plastikos packaging v. cce., allahabad - 2001 (128) e.l.t. 386 (tri.-del.) (4) pravasa sahakari sakhar karkhana ltd. v. cce - 1989 (44) e.l.t. 664 (tri.) 2. shri s.s. bhagat, learned s.d.r. points out that remission of duty can only be granted under rule 49(1) of the central excise rules, 1944 in the case of unavoidable accident. in this connection he cites the case laws relating to hindustan insecticides ltd. v. cce., cochin - 1988 (33) e.l.t, 575 (tri.) and cce., meerut v. dhampur sugar mills, dhampur - 1986 (24) e.l.t. 28a (tri.). he also points out that in the insurance survey report the probable cause of the fire has been attributed to :- according to him, none of these can be called unavoidable accident. he further supports the order of the commissioner for demand of duty, penalty and interest.3. we have heard the rival submissions and perused the case records and case laws cited before us. rule 49 of the central excise rules, 1944 provides as under: "payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the (commissioner) under rule 47: provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises: provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the (commissioner) by order in writing." it is clear from the above that if it is shown to the satisfaction of the proper officer that the goods are lost or destroyed by natural cause or by unavoidable accident during storage, the duty on such goods is not payable. this is also the ratio of the decision in the case of hindustan insecticides industries cited by the learned s.d.r. in the instant case, the insurance company has settled the claim of the appellants. the survey report records that as per the fire brigade report the fire was accidental. the police panchnama also stated that the fire was accidental and nothing was confiscated from the fire site for investigation. the survey report further states that though the cause of the fire could not be established, the surveyors were of the view that either short circuit or electrical fault or carelessly discarded cigarette/bidi might have caused the fire. the fire brigade report, the police report as well as the insurance report all point to the fact that the fire was accidental and that there was no identifiable cause for the fire though the survey report conjectures three possible reasons for such fire. in the absence of any definite reason being found for the fire, it has to be concluded that the fire was accidental and unavoidable and its cause cannot be attributed to the appellants when they had taken all necessary fire fighting measures and had also called the fire brigade immediately on detection of the fire. it is also pertinent that the insurance company has settled the claim for the value of the goods destroyed on the basis of the said survey report. if there was any doubt that the appellants were any way responsible for the fire, the insurance company would not have obviously settled their claim. it is also seen that the excise authorities were informed about the fire accident and there is no report from the excise officers to the effect that the fire was not the cause of unavoidable accident.4. the case law relating to inalsa ltd. cited by the learned advocate has ruled that the inputs used in the finished goods damage in fire had been put to intended use of manufacturing the final products and therefore entitlement to modvat credit on such inputs cannot be denied even though the final products destroyed in the fire was granted remission of duty. in the case of commissioner of customs v. shree balaji garments industries, it has also been held by the tribunal that the police report, insurance claim determination and customs verification fail to point out any wilful act, negligence or default and since there was no legal obligation to insure goods for duty, failure to do so did not amount to negligence. in the case of plastikos packaging v. cce, allahabad it has been held that when no evidence has been" adduced in the show cause notice or brought on record in the adjudication to prove that goods which have been removed without payment of duty in the garb of fire accident, remission of duty is permissible under rule 49.5. in view of these decisions and in the light of the fire brigade, police and insurance survey reports, we have no hesitation in coming to a finding that in the instant case remission of duty on the goods burnt/damaged in fire is admissible. as far as the demand of the modvat credit taken on inputs used in the finished goods burnt/damaged in the fire is concerned, we are in agreement with the decision of the northern bench of the tribunal in the case of inalsa that remission of duty on the finished goods cannot be equated with exemption to goods and that the inputs can be considered to have been put to the intended use of manufacturing of final products. however, with great respect we disagree with the conclusion of the said bench that in a case where the duty is remitted on finished goods destroyed in fire, a manufacturer can avail of the credit of inputs duty and use the same for paying duty on other goods. the appellants have already been compensated by the insurers for the value of the finished goods which is inclusive of the value of the inputs. we are allowing remission of duty on the finished goods. the intention of the modvat scheme is that the duty paid on inputs can be taken credit for paying duty on the finished goods to give relief against the cascading effect of excise duty. when the duty on the finished goods is being remitted, allowing credit of duty paid on inputs would confer a totally unintended benefit on the appellants.allowing such credit when the finished goods suffer no duty would amount to allowing a cash refund as it can be utilised for paying duty on other goods. there is no provision in the central excise rules to either allow refund of duty paid on inputs or to grant remission of such input duty when the finished goods made from such inputs get burnt/destroyed in fire. the modvat scheme cannot be interpreted in a way to allow such a refund/remission of duty on the inputs which is not provided for in the rules. we therefore hold that credit of duty taken on inputs used in the finished goods burnt/damaged in fire, is demandable from the appellants since the remission of duty on such finished goods is being allowed by us.6. as regards the penalty, we are of the opinion that the same is not imposable in the circumstances of the case. interest on the modvat credit disallowed will be payable at the rates specified under rule 57-i of the central excise rules, 1944.

Judgment:
1. Shri J.C. Patel, learned Advocate for the appellants states that the appellants have provided fire fighting equipments in their factory and they have also trained their personnel for fire fighting to deal with fire accidents. However, on 11-3-1999 a fire broke out in the appellants' factory premises and despite the fire brigade arriving within a few minutes there was some loss of the finished goods in the fire. He states that the excise authorities and police were also intimated. The New India Insurance Company Ltd. have drawn a survey report and have settled the claims regarding the burnt/damaged goods which does not include duty. The appellants were issued a show cause notice demanding central excise duty of Rs. 44,33,998/- on the finished goods burnt/damaged in the fire and also another amount of Rs. 2,28,834/- representing Modvat credit on the inputs contained in such burnt/damaged goods. He states that the Commissioner has confirmed these duty demands and has also imposed equivalent amount of penalty apart from charging interest at the of 24% on the ground that the benefit of remission of duty cannot be granted as the appellants have no proof that the fire had taken place due to natural cause or unavoidable accident. He cites the following case laws in support of his contention that remission of duty should be granted to the appellants :- (2) Commr. of Cus. JCD, New Delhi v. Shree Balaji Garments Inds.

-2000 (122) E.L.T. 569 (Tri.)Plastikos Packaging v. CCE., Allahabad - 2001 (128) E.L.T. 386 (Tri.-Del.) (4) Pravasa Sahakari Sakhar Karkhana Ltd. v. CCE - 1989 (44) E.L.T. 664 (Tri.) 2. Shri S.S. Bhagat, learned S.D.R. points out that remission of duty can only be granted under Rule 49(1) of the Central Excise Rules, 1944 in the case of unavoidable accident. In this connection he cites the case laws relating to Hindustan Insecticides Ltd. v. CCE., Cochin - 1988 (33) E.L.T, 575 (Tri.) and CCE., Meerut v. Dhampur Sugar Mills, Dhampur - 1986 (24) E.L.T. 28A (Tri.). He also points out that in the insurance survey report the probable cause of the fire has been attributed to :- According to him, none of these can be called unavoidable accident. He further supports the order of the Commissioner for demand of duty, penalty and interest.

3. We have heard the rival submissions and perused the case records and case laws cited before us. Rule 49 of the Central Excise Rules, 1944 provides as under: "Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the (Commissioner) under Rule 47: Provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises: Provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the (Commissioner) by order in writing." It is clear from the above that if it is shown to the satisfaction of the proper officer that the goods are lost or destroyed by natural cause or by unavoidable accident during storage, the duty on such goods is not payable. This is also the ratio of the decision in the case of Hindustan Insecticides Industries cited by the learned S.D.R. In the instant case, the insurance company has settled the claim of the appellants. The survey report records that as per the fire brigade report the fire was accidental. The police panchnama also stated that the fire was accidental and nothing was confiscated from the fire site for investigation. The survey report further states that though the cause of the fire could not be established, the surveyors were of the view that either short circuit or electrical fault or carelessly discarded cigarette/bidi might have caused the fire. The fire brigade report, the police report as well as the insurance report all point to the fact that the fire was accidental and that there was no identifiable cause for the fire though the survey report conjectures three possible reasons for such fire. In the absence of any definite reason being found for the fire, it has to be concluded that the fire was accidental and unavoidable and its cause cannot be attributed to the appellants when they had taken all necessary fire fighting measures and had also called the fire brigade immediately on detection of the fire. It is also pertinent that the insurance company has settled the claim for the value of the goods destroyed on the basis of the said survey report. If there was any doubt that the appellants were any way responsible for the fire, the insurance company would not have obviously settled their claim. It is also seen that the excise authorities were informed about the fire accident and there is no report from the excise officers to the effect that the fire was not the cause of unavoidable accident.

4. The case law relating to Inalsa Ltd. cited by the learned Advocate has ruled that the inputs used in the finished goods damage in fire had been put to intended use of manufacturing the final products and therefore entitlement to Modvat credit on such inputs cannot be denied even though the final products destroyed in the fire was granted remission of duty. In the case of Commissioner of Customs v. Shree Balaji Garments Industries, it has also been held by the Tribunal that the police report, insurance claim determination and customs verification fail to point out any wilful act, negligence or default and since there was no legal obligation to insure goods for duty, failure to do so did not amount to negligence. In the case of Plastikos Packaging v. CCE, Allahabad it has been held that when no evidence has been" adduced in the show cause notice or brought on record in the adjudication to prove that goods which have been removed without payment of duty in the garb of fire accident, remission of duty is permissible under Rule 49.

5. In view of these decisions and in the light of the fire brigade, police and insurance survey reports, we have no hesitation in coming to a finding that in the instant case remission of duty on the goods burnt/damaged in fire is admissible. As far as the demand of the Modvat credit taken on inputs used in the finished goods burnt/damaged in the fire is concerned, we are in agreement with the decision of the Northern Bench of the Tribunal in the case of Inalsa that remission of duty on the finished goods cannot be equated with exemption to goods and that the inputs can be considered to have been put to the intended use of manufacturing of final products. However, with great respect we disagree with the conclusion of the said Bench that in a case where the duty is remitted on finished goods destroyed in fire, a manufacturer can avail of the credit of inputs duty and use the same for paying duty on other goods. The appellants have already been compensated by the insurers for the value of the finished goods which is inclusive of the value of the inputs. We are allowing remission of duty on the finished goods. The intention of the Modvat scheme is that the duty paid on inputs can be taken credit for paying duty on the finished goods to give relief against the cascading effect of excise duty. When the duty on the finished goods is being remitted, allowing credit of duty paid on inputs would confer a totally unintended benefit on the appellants.

Allowing such credit when the finished goods suffer no duty would amount to allowing a cash refund as it can be utilised for paying duty on other goods. There is no provision in the Central Excise Rules to either allow refund of duty paid on inputs or to grant remission of such input duty when the finished goods made from such inputs get burnt/destroyed in fire. The Modvat scheme cannot be interpreted in a way to allow such a refund/remission of duty on the inputs which is not provided for in the Rules. We therefore hold that credit of duty taken on inputs used in the finished goods burnt/damaged in fire, is demandable from the appellants since the remission of duty on such finished goods is being allowed by us.

6. As regards the penalty, we are of the opinion that the same is not imposable in the circumstances of the case. Interest on the Modvat credit disallowed will be payable at the rates specified under Rule 57-I of the Central Excise Rules, 1944.