No Penalty for Reversed Credit after Claim of Loss received from Insurance Company: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai bench held that penalty for reversed credit after a claim of loss received from insurance company is not sustainable.

Ms Payal Nahar appeared for the appellant Shri N N Prabhudesai appeared for the respondent

The appellant M/s Savita Oil Technologies Limited, a manufacturer of products utilizing ‘base oil’ and other ‘petroleum oils’ as inputs, where it was found that credit had been irregularly availed on ‘inputs’ said to have been received in their factory as evidenced by the difference between the quantity indicated in the invoice and that in the ‘goods receipt notes (GRNs)’ recording the actual offloading from the tankers generated for internal use after weight of tankers – laden and empty.

The appellant took Modvat credit on the short received goods as the difference between the ascertained weight and the weight shown in the invoices is less than 2% and also claimed the loss with the insurance company which was later got paid.

The original authority confirmed the demand of ₹ 23,61,867 under rule 14 of CENVAT Credit Rules, 2004, along with interest thereon, besides imposing a penalty under rule 15 of CENVAT Credit Rules, 2004 while dropping the demand of ₹ 2,95,275.

The appellant stated that any compensatory restitution received upon settlement of insurance claim was adjusted by payment of duty and that has not been controverted by Revenue. In contra, the revenue contended that since the claim amount included the CVD amount the applicants would get double benefit if Modvat credit on short received goods was allowed.

It was observed that there was no further demand for CVD as the appellants reversed the credit after they received their claim from the insurance company and observed that the credit taken by the appellant was the duty of central excise paid by the supplier as recorded in the invoices and any difference in quantity, manifested in ‘goods receipt note (GRN)’ on actual weight at the place of receipt, does not alter the tax thus borne on the goods except when credit accrues to the supplier through appropriate debit notes raised by the recipient.

 In light of precedent Justice Dilip Gupta, president Mr C J Mathew, Member (technical) viewed that loss in transit was not includible for computation of ‘assessable value’; conversely, inclusion therein implies higher value per unit and consequent absorption of higher liability of tax and allowed the appeal by setting aside the impugned order.

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