2006 (11) TMI 45 - AT - Central Excise

Cenvat/Modvat - Reversal of credit -During storage invisible losses of the inputs and final products and it is within the permissible limit - ordering to reverse/pay the proportionate duty on losses in excess of permissible limit and not interferred with

Summary

Issues:
1. Appeal against Commissioner (Appeals) order partly setting aside original authority's order.
2. Appeal against Commissioner (Appeals) order setting aside demand of duty and penalty.
3. Availment of Cenvat credit facility for inputs.
4. Reversal of credit on duty paid on molasses due to estimated losses.
5. Consideration of evaporation losses in rectified spirit.
6. Payment of duty on losses exceeding permissible norms.
7. Eligibility of credit availed on inputs for exempted products.
8. Appeal by the department against Commissioner (Appeals) orders.

Analysis:
1. The appeal was made against the Commissioner (Appeals) order which partly set aside the original authority's order. The Commissioner (Appeals) set aside the demand of duty and penalty imposed by the original authority in two separate appeals. The same respondent was involved in both appeals, and the issue remained the same throughout.

2. The respondent company, involved in manufacturing sugar, molasses, ethyl alcohol, and paper, availed the Cenvat credit facility for inputs, specifically molasses used in manufacturing ethyl alcohol. The company reported storage/evaporation losses of rectified spirit in their ER-1 returns for different periods.

3. The department contended that the credit on duty paid on molasses, which contributed to the estimated losses of the products, should be reversed. The original authority confirmed the duty and ordered the reversal of credit related to molasses that went into ethyl alcohol, which was exempted from duty.

4. The Commissioner (Appeals) in one appeal held that evaporation of rectified spirit due to natural causes should not be considered as removal of goods. She accepted losses up to 0.5% and ordered the reversal/payment of duty on the excess 0.13%. In the other appeal, she accepted the entire losses as they were below 0.5%.

5. The department argued that duty is not paid on finished goods lost for any reason, and since the exempted products did not incur duty, the inputs used in them should not be eligible for credit reversal.

6. The judge considered that both raw materials and finished goods were prone to storage losses within permissible norms. The losses in storage of finished products were invisible, and when the finished product is lost in invisible form, the ingredients are also lost. The judge found the reasoning of the Commissioner (Appeals) acceptable and dismissed the appeals by the department.