2017 (3) TMI 1582 - AT - Central Excise

CENVAT credit - inputs found short - Held that - on lack of any evidence of clandestine removal, the reasonableness of the explanation for the shortage which was found to be well within normal tolerance limit - grounds of appeal fail to specify any part of the show cause notice that can controvert the claim of process loss which is inherent in any manufacturing activity - appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against order dropping recovery of CENVAT credit on short inputs during physical stock-taking.

Analysis:
The Revenue appealed against the dropping of recovery of CENVAT credit amounting to ?27,11,481 confirmed by the original authority against a company for wrongful availment of credit on inputs found to be short during physical stock-taking and based on a cost audit report. The Revenue contended that CENVAT credit should only be availed to the extent inputs are actually utilized in manufacturing, and the burden of proving legitimate use lies on the assessee through proper accounting. The first appellate authority's reliance on a Tribunal decision was challenged, citing a Bombay High Court judgment that overruled the Tribunal's decision, stating it lacked the authority of law.

The Revenue emphasized the importance of establishing legitimate use of inputs for availing CENVAT credit, referring to a Supreme Court decision. They argued that the Tribunal's decision, which set aside the demand confirmation due to failure to account for inputs, was inappropriate and not binding as per the High Court's ruling. Various legal precedents were cited to support the Revenue's position.

The Tribunal's decision in other cases was highlighted, where denial of credit was upheld for reasons like writing off inputs without reversing credit and clandestine removal of inputs. The importance of proper accounting and evidence of legitimate use was emphasized through these cases. The Tribunal also noted the insertion of a rule prescribing the reversal of CENVAT credit on inputs used for goods that later became exempt.

On the contrary, the respondent's counsel relied on a High Court decision to support their case. After considering both sides and reviewing the case laws, the Tribunal found that the shortage of inputs in this case was minimal compared to the total consumption, and the explanation provided was reasonable. The Tribunal emphasized the lack of evidence of clandestine removal and the normal tolerance limit of the shortage. The Tribunal concluded that the Revenue's appeal lacked merit and dismissed it, highlighting the importance of proper explanation for shortages in manufacturing activities.

In summary, the Tribunal's decision focused on the reasonable explanation for input shortages, the lack of evidence of wrongdoing, and the importance of proper accounting practices in availing CENVAT credit. The Tribunal's analysis of relevant legal precedents and the specific circumstances of the case led to the dismissal of the Revenue's appeal.