[Order]. - Revenue is in appeal against the impugned order dropping the show cause notice which was issued to deny the Cenvat credit on inputs used in the semi-finished goods/work in progress which were lost in fire.

2. The facts of the case are that on 29-2-2010 the fire broke out in the factory of the respondent wherein semi-finished goods and work-in-progress was destroyed. The respondent filed remission claim of duty under Rule 21 of the CER, 2002 which was rejected by the learned Commissioner on the premise that the semi-finished goods and work-in-progress are not excisable, therefore, claim of remission is not sustainable.

3. Thereafter show cause notice was issued to the respondent to reverse the Cenvat credit on the inputs used in semi-finished goods/work-in-progress under Rule 3(5B) of the CCR, 2004. Both the lower authorities dropped the show cause notice holding that respondent is not required to reverse the Cenvat credit. Against the said order, Revenue is before me.

4. The learned AR submits that both the lower authorities has passed the order beyond the allegation of show cause notice as show cause notice alleged that the respondent is required to reverse the Credit as per Rule 3(5B) of the CCR, 2004. Therefore, the impugned order is required to be set aside in the light of C.B.E. & C. Circular No. 907/27/09-C.E., dated 7-12-2009.

5. On the other hand, learned Counsel opposed the contention of the learned AR as inputs have been used for the production, therefore, said inputs were at the stage of manufacturing and were lost in fire, therefore, they are not required to reverse the Cenvat credit availed thereon. To support this contention, he relied on the decision of Tribunal in the case of Nector Lifesciences Ltd. [ (Tri.-Del.)J and Indchem Electronics v. Commissioner [ (Tri.-Chen.)] which has been affirmed by the Hon’ble Apex Court in [2003 (157) A206 (S.C.)] and further submits that the provision of Rule 3(5B) of CCR, 2004 are not applicable to the facts of this case.

6. In rebuttal to the arguments advanced by the learned Counsel, learned AR submits that case law relied upon by the learned Advocate are not applicable to the facts of this case as Rule 2 and 3 have been introduced with effect from 11-5-2007 and in both the cases, fire broke out prior to said period.

7. Heard the parties. Considered the submissions.

8. In this case, the contention of the learned AR is that the show cause notice was issued to the respondent to reverse the Cenvat credit as per the provision of Rule 3(5B) of the CCR, 2004 and C.B.E. & C. Circular No. 907/27/2009-C.E., dated 7-12-2009. For better appreciation, the provision of Rule 3(5B) of the said Rules are extracted hereinunder :

“Cenvat Credit Rules, 2004 3 (5B)

(5B). If the value of any,

(i) input, or

(ii) capital goods before being put to use,

on which Cenvat credit has been taken is written off fully or where any provision to write off fully has been made in the books of account, then the manufacturer shall pay an amount equivalent to the Cenvat credit taken in respect of the said input or capital goods :

Provided that if the said input or capital goods is subsequently used in the manufacture of final products, the manufacturer shall be entitled to take the credit of the amount equivalent to the Cenvat credit paid earlier subject to the other provisions of these rules.”

9. Therefore, the issue before me in this case is that whether the provisions of Rule 3(5B) of CCR, 2004 are applicable to the facts of this case or not. On plain reading of the Rule 3(5B) it is clear that if the assesses writes off the Cenvat credit fully or partially in the books of account, in that case, the manufacturer shall pay an amount equivalent to the Cenvat credit taken in respect of the said input or capital goods, which means that if the assessee on being obsolete of capital goods or inputs writes off and a certain value and pay duty thereon on the said value, for that Rule 3(5B) was introduced to the Rules to say that in such a situation when inputs become obsolete as such, the assessee is required to reverse the Cenvat credit which was availed on this inputs/capital goods. In this case, fire has broken in the factory of the premises of the respondent wherein the inputs which were used in manufacture were destroyed. It is admitted fact that inputs were in the process of manufacture of final goods. Therefore, the provisions of Rule 3(5B) of the CCR, 2004 are not applicable to the facts of this case.

10. Now I deal with the situation wherein the inputs were issued for manufacture ad same has been work-in-progress, semi-finished goods destroyed in fire.

11. Further, I find that C.B.E. & C. Circular No. 907/27/2009-C.E., dated 7-12-2009 is contrary to the judicial pronouncement of this Tribunal wherein in the case of Nector Lifescience (supra), this Tribunal has examined the Rule as well as the C.B.E. & C. Circular and thereafter held as under :

“13. We further note that the legal issue as regards reversal of credit is well settled. If the inputs, on which the credit stand availed were issued for further manufacture of the goods and goods are destroyed during the course of manufacture of the goods, no reversal of Cenvat credit is called for. For the above proposition, reference can be made to the Tribunal’s decision in the case of Commissioner of Central Excise and Customs, Pune v. Spectra Speciality [ (Tri.-Mum.)] as upheld by the Hon’ble Supreme Court as reported in []. To the same effect is another decision of the Tribunal in the case of Commissioner of Central Excise, Chennai v. Indchem Electronics [ (Tri.-Chennai)] wherein it stand held that where inputs were actually issued and thereafter destroyed in fire accident, there is no requirement of reversal of Cenvat credit. The said decision also stands upheld by the Hon’ble Supreme Court, when the appeal filed by the Revenue was dismissed, as reported in (S.C.)]. The list is unending and we do not feel any need to refer to all such decisions as the issue is almost settled.

14. As such, in the light of the said decision as detailed above, the factual position, as disputed by the Revenue, is required to be ascertained. Whereas the Revenue is contending that it was actually the inputs which were destroyed, the appellants stand is that it was the work-in-progress, which was destroyed in the fire. We note that the appellant, right from their first letter onwards, in all their communications addressed to the Revenue, have repeatedly submitted that the fire broke out in the bulk drug unit of the appellant, which unit is located in the manufacturing section. Inasmuch as the bulk drug manufacturing section of the plant is away from the stores, where the inputs were stored, the said fact itself establishes that the inputs had been issued for manufacturing and were work in progress. It is seen that the Commissioner has referred to the appellants claim made before the insurance company, wherein description of the goods stand given by them and has concluded that inasmuch as the goods described by the name of the inputs, on which credit was availed, it has to be held as if the inputs were destroyed. However, this stand explained by the learned advocate appearing for the appellant, that during the process of manufacture, there are various recoveries of the same inputs, which are again used at the manufacturing floor. We find that without referring to the technical details, we note that there is no dispute about the fact that input store is situated at a place different than the bulk drug manufacturing section of the plant. Learned advocate has produced before us the approved ground plant which reveals that the manufacturing unit, where drugs are being manufactured is separate from the stores, formulation unit, solvent storage etc. There is a dividing road between the bulk drug manufacturing section and the store meant for storing inputs which is around 20 feet wide road. If that be so, it has to be concluded that goods which are destroyed in the fire in the bulk drug manufacturing section were the goods which have already left the inputs store and as such, same cannot be considered to be inputs destroyed as such, so as to call for reversal of Cenvat credit. The bulk drugs are manufactured and marketed in the batches and the inputs are issued for production on the basis of issue slips corresponding to batches that are to be manufactured. Mostly the inputs are various chemicals which are consumed. The said goods were admittedly work-in-progress, in which case, no reversal of credit is justified. There is clearly no evidence on record to substantiate Revenue’s allegations and findings that the destroyed goods were actually inputs, which were not issued for further manufacturing.”

12. Therefore, I hold that respondents are not required to reverse the Cenvat credit. As such, I do not find any infirmity in the impugned order. Same is upheld. Appeal filed by the Revenue is dismissed.

(Dictated and pronounced in the open Court)