Rule 57A does not mandate that credit can be claimed only if there is emergence of final product or that manufacture of final product is complete - Credit admissible on inputs destroyed in fire: High Court 

FEB 17, 2015: This is a Revenue appeal against the order passed by the Tribunal. The appeal was filed in the year 2005 and was decided this month. service tax

The facts involved is admissibility or otherwise of credit of Rs.27,24,890/- on duty paid inputs used for manufacture of finished goods which have not come into existence due to destruction in fire.

The adjudicating authority confirmed the demand but the Commissioner(A) set aside the same and the appeal by the Revenue was dismissed by the CESTAT.

The counsel for the Revenue submitted that the words "goods used in or in relation to the manufacture of the said final products" (appearing in rule 57A of CER, 1944) read in their entirety would mean that there should be a manufacture of the final product; that if during the manufacturing process the fire occurred and everything was destroyed, then there was no manufacture of a final product; that since the final product did not emerge at all, the credit of inputs was inadmissible .

The respondent assesse submitted that the position that emerges from a combined reading of Rule 57A and Rule 57F(1) indicates that inputs in respect of which credit has been allowed under Rule 57A may be used in or in relation to the manufacture of final products for which such inputs had been brought into the factory or they shall be removed from the factory for home consumption or for export, but if they are removed for home consumption on payment of duty of excise, such duty of excise shall be the amount of credit that has been availed on such inputs under Rule 57A. Inasmuch as since emergence of a final product is not a condition which is prescribed for availment of the credit, therefore, the Tribunal was right in allowing the credit. 

The High Court extracted the contents of rule 57A(1) of the CER, 1944 and observed -

What the legislature at that time envisaged was that so long as the goods styled as inputs have been brought in for the purpose of usage in or in relation to the manufacture of the said final products, the credit can be claimed and in terms of the Central Excise Rules, 1944, as applicable.

There was nothing in the Rules which would mandate that the credit of duty can be claimed and in relation to such inputs only if there is emergence of a final product or that the manufacture of the final product is complete. Had that been the intent, the words "goods used in or in relation of the manufacture of the said final products" would not have appeared in sub-rule (1) of Rule 57A. Their plain meaning enables us to agree with the Tribunal that the intent of the rule makers was not to disallow credit merely because a contingency over which the assessee had no control takes place.

None could have predicted a fire occurring in the manufacturing plant of the assessee. That the fire occurred at the relevant time but the goods were already utilized in the process of manufacturing of the final product, then the credit paid on those goods was admissible. There is no dispute about these facts, including the fire. In the circumstances, the Tribunal took the view that the language of the Rule does not permit it to agree with the Revenue and deny the credit.

Holding that the Tribunal's conclusion cannot be termed as perverse or vitiated by any error of law apparent on the face of the record, the substantial questions of law were answered in favour of the assessee and against the Revenue. service tax

The Revenue appeal was dismissed.