2007 (3) TMI 51 - AT - Central Excise

Modvat/Cenvat Department contended that the inputs to the extent found in shortage had not been used in the manufacture of final products and hence credit not allowed to the appellant Held credit allowed to the appellant

Summary

Issues:
- Disallowance of Modvat/Cenvat credit on inputs written off in balance sheet
- Interpretation of Board's Circular No. 645-36-2002-CX
- Comparison with similar cases and precedents

Issue 1: Disallowance of Modvat/Cenvat credit on inputs written off in balance sheet
The appeals were against orders affirming demands raised by the department due to inputs written off in the balance sheets, leading to denial of Modvat/Cenvat credit. The department argued that inputs written off were not used in final products, hence credit should be reversed. The shortage of inputs written off was less than 0.7% of total inputs procured, and the company had taken credit on the entire quantity. The original authority imposed penalties, which were reduced by the Commissioner (Appeals).

Issue 2: Interpretation of Board's Circular No. 645-36-2002-CX
The Tribunal referred to decisions involving Hindustan Zinc Ltd. and Ashok Leyland cases, where Modvat/Cenvat credit was denied on written-off inputs. The company argued that the inputs were lost in the manufacturing process and should be eligible for credit. The cited cases highlighted negligible quantities of inputs written off, similar to the present case, justifying the availment of credit.

Issue 3: Comparison with similar cases and precedents
After analyzing the cited cases and submissions, the Tribunal found that the appellants were entitled to Modvat/Cenvat credit based on the case law presented. The negligible quantity of inputs written off, less than 0.7%, and the inability to use them in final products supported the eligibility for credit. Following the precedents, the Tribunal set aside the orders and allowed the appeals, emphasizing the importance of negligible losses in relation to the total inputs received for granting Modvat/Cenvat credit.

This detailed analysis of the judgment addresses the issues of disallowance of Modvat/Cenvat credit, interpretation of relevant circulars, and comparison with similar cases and precedents, providing a comprehensive understanding of the Tribunal's decision.