Finished Goods Destroyed In Fire; Bajaj Herbals Eligible For Remission Of Excise Duty: CESTAT

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Bajaj Herbals was eligible for remission of duty on the finished goods destroyed in the fire incident.

The bench of Ramesh Nair (Judicial Member) has observed that short circuits are a usual cause of fire in the majority of cases; therefore, the fire due to a short circuit cannot be attributed to any malafide on the part of the appellant, nor can it be said that the appellant has not taken the abundant precaution to avoid the fire incident. Even as per the forensic report, it has been concluded that the fire took place due to a short circuit.

The appellant/assessee is engaged in the manufacture of excisable goods, namely, hair oil, hair cream, hair dye powder, toothpaste, hand wash liquid, beauty fairness cream, petroleum jelly, hair conditioner, shampoo, talcum powder, etc., falling under Chapter 33 of the First Schedule of the Central Excise Tariff Act, 1985.

The appellant was availing of the facility of cenvat credit for duty paid on the inputs and capital goods under the Cenvat Credit Rules, 2004. The appellant filed an application for remission of excise duty under Rule 21 of the Central Excise Rules, 2002, on finished goods, claiming that their finished goods were destroyed in the fire accident.

With reference to their remission application, a show cause notice was issued alleging that the appellant did not take adequate steps and precautions in storing their finished goods, as it is established that the fire accident occurred as a result of negligence, which cannot be considered a natural cause or unavoidable accident in order to grant remission of excise duty.

It was also alleged that the appellant, before filing the remission application, had not reversed the cenvat credit of duty involved in the raw materials used in the manufacture of finished goods that were destroyed.

The adjudicating authority rejected the remission claim, confirming the charges made in the show-cause notice.

The assessee contended that the goods had been destroyed in a fire accident, which is a natural cause beyond the control of the appellant. The condition laid down in Rule 21 of the Central Excise Rules of 2002 was fulfilled for the purpose of claiming remission of duty.

The assessee submitted that, as per the provision of Rule 3(5)(C), the reversal of credit has to be made after the remission of duty on finished goods is granted. Therefore, the observation of the adjudicating authority that the appellant has not reversed the cenvat credit in respect of inputs prior to granting the remission of duty is beyond the scope of the provision.

The CESTAT set aside the order rejecting the remission of duty and observed that the appellant's case was clearly covered under the four corners of Rule 21 of the Central Excise Rules, 2002, and the appellant is clearly eligible for remission of duty on the finished goods destroyed in the fire incident.

"Rule 3(5)(c) of the Cenvat Credit Rules, it is absolutely clear that the reversal of the cenvat credit is statutorily to be made only after the competent authority grants the remission of duty; therefore, the contention of the learned Commissioner that they have not reversed the credit before remission is without any basis," the CESTAT noted.

Case Title: Bajaj Herbals Private Ltd Versus C.C.E. Ahmedabad-II

Citation: Excise Appeal No. 10335 of 2020

Date: 20.10.2022

Counsel For Appellant: R.R. Dave

Counsel For Respondent: Kalpesh P. Shah

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