COMMISSIONER OF CENTRAL EXCISE Vs. FENNER INDIA LTD.

JUDGEMENT

(1.) THIS appeal by the Revenue is directed against the order dated 19 -12 -2008 passed by the Customs, Excise and Service Tax Appellate Tribunal (The Tribunal) in Final Order No. 1463 of 2008 in the appeal filed by the assessee. The facts are that the first respondent/assessee is engaged in the manufacturing of Oil Seals falling under Chapter Heading No. 40 of the Central Excise Tariff Act, 1985. On account of fire accident on 5 -5 -2006 in the 'post cutting area' of the factory, the work in progress stocks were burnt and rendered unfit for usage, which was informed to the department in writing on the same day. The assessee also lodged a claim with the insurance company. It is further stated that the assessee had availed Cenvat credit on the raw materials, which were to be used for production of Oil Seals. A show cause notice dated 28 -12 -2006 was issued calling upon the assessee to explain as to why the Cenvat credit availed on raw materials, which was destroyed in fire should not be demanded in terms of Rule 14 of the Cenvat Credit Rules, 2004 r/w Section 11A of the Central Excise Act, 1944 and why penalty and interest should not be levied. The assessee by referring to Rule 2(k)(i) of the Central Excise Rules, 2002 stated that the inputs should be received within the factory of production and no co -relation or nexus is required to be established for availing the credit and input credit is allowed whether it is contained in the final product and it should be allowed on the basis of the documents as enumerated under Rule 9 of the Central Excise Rules, 2002. Further it was stated that Rule 3(1) of the Cenvat Credit Rules, 2004 during the material period does not state that a manufacturer or producer of final products is allowed to take Cenvat credit on an input, provided the inputs are used in or in relation to manufacture of final product as alleged in the show cause notice. Further, it was contended that the inputs were put in use for the manufacture of final products and the question of reversing the credit does not arise. In support of its contention, reliance was placed on the decision of the Tribunal in the case of Commissioner of Central Excise, Chennai -III v. Indchem Electronics reported in - : 2003 (151) E.L.T. 393 (Tri. -Chennai). The Original Authority, rejected the assessee's plea and directed the assessee to reverse the Cenvat credit availed.

(2.) THE assessee preferred appeal before the Commissioner of Central Excise (Appeals). The First Appellate Authority observed that it is not in dispute that the work -in -progress goods were destroyed in the fire accident during the course of manufacturing. However, the adjudicating authority held that the assessee is liable to reverse the credit on inputs contained in the work -in -progress, which were destroyed in fire, by placing reliance on the decision of the Tribunal, in the case of M/s. Tambraparani Coatings v. Commissioner of Central Excise, Pondicherry [ : 2006 (193) E.L.T. 80 (Tri. -Chen.)]. As regards the order of the Tribunal in the case of Indchem Electronics (cited supra), the First Appellate Authority held that the Special Leave Petition filed by the Department as against the said order was dismissed by a non -speaking order and therefore that would not be binding. On the above ground, the appeal came to be rejected. However, the First Appellate Authority set aside the penalty imposed by the Adjudicating Authority.

(3.) AGGRIEVED by the same, the Revenue has preferred this appeal, which has been admitted on the following substantial question of law: