Precedent – Binding nature of order of Tribunal – Strictures against Commissioner (Appeals): Section 35G of Central Excise Act 1944.

The facts were that the first respondent/assessee is engaged in the manufacturing of Oil Seals. On account of fire accident on 05-05-2006 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. It was 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 were destroyed in fire should not be reversed. The assessee by referring to Rule 2(k)(i) of the Central Excise Rules, 2002 submitted its reply. The Assessee relied on the Tribunal decision in the case of Commissioner of Central Excise, Chennai III vs. Indchem Electronics reported 2003 (151) ELT 393 (Trib. Chennai). The Original Authority, rejected the assessee’s plea and directed the assessee to reverse the Cenvat credit availed.

The assessee preferred appeal before the Commissioner of Central Excise (Appeals). The First Appellate 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 vs. 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, 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.

Aggrieved by the said order, the assessee preferred a further appeal to the CESTAT . The Tribunal after considering the case of the assessee and taking note of the facts held that there is no dispute with regard to the destruction of the goods, when manufacturing work is in progress, and therefore the assessee need not reverse the Cenvat credit availed. The Tribunal by placing reliance on the decision of Indchem Electronics (cited supra) allowed the assessee’s appeal.

On appeal, the Court held that stand taken by the Commissioner (Appeals) is wholly unsustainable and quite contrary to the settled legal position. It is to be noted that the Hon’ble Supreme Court, while dismissing the assessee appeal has assigned reasons. The Hon’ble Supreme Court observed that the Appellate Tribunal in its impugned order had held that Modvat/Cenvat credit cannot be denied on inputs destroyed in the fire accident when the fact that the inputs were actually issued and thereafter destroyed in fire accident, which fact is not disputed by the Department. Therefore, it cannot be stated that it is a non-speaking order. In any event the Commissioner orders are subject to scrutiny by the Tribunal and he is bound by the order passed by the Tribunal and it is wholly untenable on the part of the Commissioner to contend that the decision of the Tribunal would not bind the Commissioner. Therefore, the finding of the Commissioner to that extent is absolutely perverse.