Destruction of Goods - Central Excise Act,1944, Indirect Tax Laws | Indirect Tax Laws - B Com PDF Download

Destruction of Excisable Goods

Death or illness is as certain and natural as life or good health. Just like that, goods can also be undergo unfitness, loss or destruction.

Excise is a consumption based tax law and if no consumption take place then duty is not payable. Hence, in case of unfitness, loss or destruction of goods, the duty is not payable. In technical terms, it is called remission [the cancellation of debt] of duty. This article is written to guide tax payers when and how duty is not payable in case of destruction of excisable goods.

When is remission of duty can be eligible?

Rule 21 of Central Excise Rules, 2002 empowers a tax payer to apply for remission of duty in case the goods undergo a natural unfitness, loss or destruction. Natural here means when manufacturer has no control over incidents or events which causes such unfitness, loss or destruction. For example, if goods are destroyed by fire and proper security controls are not established by manufacturer then department may deny the remission of duty.

Theft is another good example of denial of remission of duty. However, in case of theft, the principle reason of denial is that the consumption takes place at least somewhere. The law of remission says the goods shall no longer be eligible for anyone’s consumption.  – Gupta Metal Steels v. CCE 2008 (232) ELT 796 (Tri. – LB)

What if insurance is received in case of fire?

The law of remission has nothing to do with the financial loss, in fact, if tax payer can prove that the goods are no longer be available for anyone’s consumption is enough proof for eligibility of remission of duty. Hence, even if insurance proceeds are received in case of fire or other causes, the remission is still eligible. – Sarada Plywood Industries Ltd. v. CCE 1987 (32) ELT 116 (T)

The procedure to follow in case of destruction of excisable goods;

1. Make an application in duplicate to Superintendent of Range Office (provide details of unfit excisable goods, reasons for destruction/loss/unfitness and proof that such goods are unfit for consumption)

2. The Superintendent of Range Office to forward the app to Deputy Commissioner (DC)/Additional Commissioner (AC)

3. DC/AC can approved or forward it for further approval to Additional Commissioner/Joint Commissioner (JC)

4. Physical Verification of destruction process is carried out by special officer / superintendent after fixing mutual dates & time. Such office will check physical quantity of goods to be destroyed.

5. Department may ask for samples to be tasted at their lab, in case they feel so.

Generally, permission is to be granted within 21 days, however, in case of samples testing, the time prescribed is 45 days.

It is the duty of tax payer to prove the unfitness, loss or destruction and hence he shall take all necessary precautions to satisfy his onus.

What about the CENVAT Credit availed on inputs used in destroyed goods?

As the liability of goods destroyed is waived under remission of duty, all rights including CENVAT Credit availed on inputs used on such destroyed goods shall be waived by tax payer. Hence, proportionate credit shall be reversed and necessary proof shall be submitted to concerned officer. The tax payer shall also disclose such reversal of credit in excise return wherever appropriate.