2013 (3) TMI 140 - AT - Central Excise

Cenvat Credit - Shortage of Raw material - method of measurement - dip method - inputs like Imported Feed Stock Carbon Black Stock CBFS-HPL LDO Tar Oil and Coal Tar. - held that - As per the Cenvat Credit Rules 2004 an assessee is entitled to take credit on inputs which has gone in the manufacturing of final product. Admittedly when these inputs have been found short and the said shortage has not gone in the manufacturing of final product therefore the appellants are required to reverse the Cenvat credit on those shortages after adjusting the excess quantity during the course of stock taking by way of dip method. As held by the Hon ble High Court of Bombay in the case of Greaves Cotton Ltd. (2007 (8) TMI 254 - HIGH COURT BOMBAY) the Hon ble High Court held that neither extended period is invocable nor penalties are imposable in these circumstances. Therefore we also hold that the demand within a period of limitation is sustainable and no penalty is leviable in this case. Matter remanded back for limited purpose of quantification of duty on the net quantity and net amount written off of within normal period of limitation.

Summary

Issues:
- Appeal against reversal of Cenvat credit of inputs due to stock measurement differences.

Analysis:
The appellants, engaged in manufacturing black carbon, faced a dispute regarding the reversal of Cenvat credit of inputs due to variations in stock measurement between flowmeter and dip method. The Department alleged that shortages identified through dip method led to the reversal demand. Show-cause notices were issued for the period April 1999 to October 2003. The adjudicating authority confirmed the demand, leading to the appeal by the appellants.

In defense, the appellants argued that they maintained accurate records of raw materials, taking measurements at the entry point through a flow meter for credit purposes. Discrepancies identified through dip method were adjusted in their books as process losses, not indicating diversion of inputs. They cited relevant case laws to support their stance, emphasizing that the inputs were utilized in manufacturing the final product.

On the contrary, the Department contended that the written-off shortages did not contribute to the final product's manufacturing, thus disentitling the appellants from claiming credit as per Cenvat Credit Rules. They relied on a Bombay High Court decision to support their argument.

After hearing both sides, the Tribunal observed that the appellants had indeed written off input quantities identified as short or excess in their books, confirming shortages. As per Cenvat Credit Rules, an assessee can claim credit only for inputs used in the final product. Since the shortages did not contribute to manufacturing, the Tribunal upheld the reversal of Cenvat credit. The case laws cited by the appellants were deemed irrelevant to the situation, given the admitted shortages.

In light of the findings, the Tribunal ruled that the demand within the limitation period was valid, and no penalties were applicable. The matter was remanded to the adjudicating authority for quantifying duty on the net written-off quantity within the limitation period. No penalties were levied, and the appeal, along with the cross-objection, was disposed of accordingly.