2012 (6) TMI 752 - AT - Central Excise

Cenvat Credit- whether Cenvat Credit could be denied to the assessee on the ground that the weight of the input recorded on receipt in the premises of the manufacturer of the final products showed a shortage compared to the weight recorded in the relevant invoice? Held that- tolerance in respect of hygroscopic, volatile and such other cargo have also to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims. Similarly, minor variations arising due to weighment by different machine will also have to be ignored if such variations are within tolerance limit - Finding no mala fide reason attributable to the appellant - Decided in favour of assessee.

Issues:
1. Interpretation of Para 13 of the decision of Larger Bench of the Tribunal in the case of CCE, Chennai v. Bhuwalka Steel Industries Ltd.
2. Consideration of various factors for allowing Cenvat credit under Rule 3(1) of the Cenvat Credit Rules.
3. Determination of shortage in inputs and its impact on Cenvat credit eligibility.

Issue 1: Interpretation of Para 13 of the Larger Bench Decision
The appellant argued that the present case falls under Para 13 of the Larger Bench decision, emphasizing the difference in weighing as bona fide and denying any reason attributable to the shortage. The adjudicating authority was criticized for assuming a predetermined mindset by deeming a shortage of up to 1.5% of inputs as normal, which was deemed erroneous. The Tribunal referred to the Larger Bench's order from 2009, highlighting the need to consider various parameters before disallowing Cenvat credit for input losses. These parameters include factors like the receipt and use of inputs, nature of goods, countable pieces, weighment accuracy, and compensation claims for shortages. The Tribunal stressed the need for a case-by-case merit-based approach rather than a rigid standard for dealing with different types of shortages.

Issue 2: Consideration of Factors for Cenvat Credit Eligibility
The Tribunal analyzed the arguments presented by both sides and the case laws cited to determine that a fixed standard cannot be applied to address different types of shortages when allowing credit under Rule 3(1) of the Cenvat Credit Rules. Factors such as the diversion of inputs, nature of goods, countable pieces, weighment accuracy, and compensation claims were deemed crucial in deciding whether the entire consignment reached the recipient without diversion. Tolerances for hygroscopic and volatile goods were to be considered based on industry norms, excluding unreasonable claims. Minor variations in weighment due to different machines were to be ignored if within tolerance limits. The Tribunal emphasized the need for a case-specific evaluation, rejecting the application of hard and fast rules for handling various shortage scenarios.

Issue 3: Impact of Input Shortage on Cenvat Credit Eligibility
After hearing both sides and examining the record, the Tribunal found no malicious intent on the part of the appellant and allowed the appeal. The decision highlighted the importance of assessing each case on its merits, considering factors like weighment accuracy, nature of goods, and compensation claims to determine the eligibility of Cenvat credit. The judgment emphasized the need for a nuanced approach rather than a blanket standard when dealing with input shortages and their impact on Cenvat credit eligibility.

This detailed analysis of the judgment showcases the Tribunal's nuanced approach to interpreting the law and considering various factors in determining Cenvat credit eligibility in cases of input shortages.

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