2015 (7) TMI 1171 - AT - Central Excise

Reversal of CENVAT credit - process loss - job work - processing of sugar - whether, the appellant is required to reverse the cenvat credit on the quantity of finished goods short received in the factory from the job worker s premises, which is attributable to the process loss at the factory of the job worker? - Held that - Rule 3 of the Cenvat Credit Rules, 2004 permits a manufacturer to take cenvat credit of duties paid on the inputs received in the factory of manufacture of final product. Since Cenvat credit has been taken by the appellant on the quantity received, as indicated in the Bill of Entry, taking of such credit is in conformity with the requirement of Rule 3 ibid. No stipulation/ embargo has been created in the cenvat statute that in case of process loss happened at the factory of the job worker, the recipient/principal manufacturer is required to reverse the cenvat credit. In absence of any specific provisions contained in the statute, requiring the manufacturer to reverse the cenvat credit, in such an eventuality, I am of the view that the cenvat credit already reversed by the appellant before issuance of the SCN and subsequent claim of the said credit by way of filing of refund application, is the proper course of action taken by the appellant for restoring such credit. Further Rule 4(5) (a) ibid provides for reversal of cenvat credit, in the possible event, where the goods have not been received from the job workers premises. The said provisions nowhere suggest that in case of process loss, the manufacturer is also required to reverse the cenvat credit. Thus, in absence of any specific stipulation being contained in the cenvat statute for reversing the cenvat credit attributable to the shortage in the quantity received in the factory on account of process loss, denial of cenvat benefit is not proper and is contrary to the statutory mandates. Compliance of with the requirements of Rule 16 ibid - Held that - I find from the available records that the Jurisdictional Assistant Commissioner has granted the letter permission to the appellant for sending the goods to the job worker and has also prescribed the conditions therein, which have been duly complied with by the appellant. I am of the considered opinion that rejection of refund claim by the Authorities below is not legal and proper. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellant with consequential benefit of refund.

Summary

Issues:
1. Whether the appellant is required to reverse the cenvat credit on the quantity of finished goods short received in the factory from the job worker's premises, attributable to the process loss at the factory of the job worker.

Analysis:
The case involved the appellant, engaged in the manufacture of Sugar and Molasses, who imported raw sugar but lost a portion during transit and processing at the job worker's premises. The appellant reversed the cenvat credit of Additional Duty of Customs paid on the lost quantity. The dispute arose regarding whether the appellant should reverse the cenvat credit for the processed sugar not received back in the factory. The appellant filed a refund application, which was rejected by the Department, leading to the present appeal before the Tribunal.

The appellant's advocate argued that since cenvat credit was taken based on the raw sugar received in the factory, it should not be denied due to process loss at the job worker's premises. He highlighted that process loss is common in the trade and cited precedents to support the appellant's position. On the other hand, the Department's representative contended that the appellant had not provided records of the actual loss during processing and that any compensation received for losses should negate the cenvat benefit. The Department also raised concerns about compliance with Central Excise Rules during the return of processed sugar to the factory.

After considering the arguments, the Tribunal found that the appellant had followed the required procedures for availing cenvat credit on the raw sugar received. The Tribunal noted that the cenvat statute did not mandate the reversal of credit in cases of process loss. Referring to Rule 4(5)(a) of the Cenvat Credit Rules, the Tribunal emphasized that the statute did not specify reversing credit for process loss. The Tribunal also cited a previous case to support its stance that credit cannot be denied for goods lost during processing at the job worker's premises.

The Tribunal observed that the appellant had provided evidence of the process loss through a certificate from the job worker's Superintendent. The Tribunal concluded that the denial of the refund claim by the lower authorities was not legally justified. Therefore, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellant, granting the consequential benefit of refund.

In summary, the Tribunal ruled in favor of the appellant, emphasizing that the cenvat credit should not be reversed for the quantity of finished goods lost during processing at the job worker's premises, as there was no specific provision in the cenvat statute requiring such reversal. The Tribunal found that the appellant had complied with the necessary procedures and was entitled to the refund claimed.