2006 (11) TMI 460 - AT - Central Excise

Summary

Issues:
- Reversal of Cenvat credit on molasses lost during storage for exempted products

Analysis:
The case involves an appeal against the Commissioner (Appeals) order which set aside the demand of duty and penalty imposed by the original authority. The respondent-companies are manufacturers of various products, including sugar molasses, denatured ethyl alcohol, rectified spirit, and extra neutral alcohol. The issue at hand is the reversal of Cenvat credit on molasses used in both dutiable and exempted products, specifically when losses occur during storage due to natural causes. The original authority had confirmed the reversal of credit, but the Commissioner (Appeals) disagreed and ruled in favor of the appellants.

The Commissioner (Appeals) analyzed the situation and found that the molasses were indeed used in or in relation to the manufacture of the final products, even if some quantity was lost during storage. Referring to relevant case law and previous decisions, the Commissioner held that the Cenvat credit on molasses contained in the lost rectified spirit and neutral alcohol cannot be denied. The Commissioner found the department's stand devoid of merit and unsustainable, ultimately granting relief to the appellants.

The learned DR for the appellant department argued that since finished goods lost for any reason do not incur duty payment, the inputs used in such exempted products should not be eligible for credit and should be reversed. However, the Commissioner noted that both raw materials and finished goods are susceptible to losses in storage, with losses within permissible norms. The losses in storage of finished products are considered invisible losses, and when the finished product is lost in this manner, the ingredients are also lost. The company accounts for such losses in their final product invoices. The Commissioner found the reasoning adopted in granting relief to the assessee acceptable and decided not to interfere with the order.

In conclusion, the appeal was dismissed, and the cross-objection was disposed of accordingly. The judgment highlights the complex interplay of Cenvat credit rules, storage losses, and the eligibility of credit in cases of losses in the manufacturing process, ultimately providing clarity on the matter in favor of the appellants.