2012 (7) TMI 825 - AT - Central Excise

Denial of CENVAT Credit - Difference in the quantity of the imported goods as per the Ullage report and storage tank outturn reports - Whether the Modvat Credit is available to the assessee on the quantity of HFO short received in the factory and the same not used in the manufacture of final product and also the assessee was liable for penalty under Section 11AC of the Central Excise Act 1944 for the excess availment of Modvat/Cenvat Credit during the period after 1-4-2000 - Held that - there is no diversion of the goods covered under the invoices in question and entire goods received under consignment has not been put to any use other than as input in the end product manufactured by the assessee and the transit loss was found by the Tribunal to be normal loss due to evaporation it must be held that the CVD paid by the consigner/importer was paid in respect of the goods entire used by the assessee as inputs in the manufacturer of end product. Moreover Rule 57(9) envisages that such amount of Modvat credit availed by the assessee which is evidenced by the invoices has inherent co-relation with the payment of duty with goods covered by such invoices. Where the CVD Customs or Excise duty on the inputs received by the assessee in the factory and used by him in manufacturing of end product has correlation with the evidence of the payment about the duty on the entire goods received and used in the factory no curtailment of Modvat credit as evidenced by the invoices is permissible. The mode of proof of quantity and payment of duty on inputs received and used as input is by producing the invoices. Unless the invoices are found to be wrong or diversion of inputs received under invoices to any other use is found there is no provisions to avail lesser Modvat credit than what has been proved to have been paid on the entire goods received and used in factory of manufacturer - there is no allegation that the imported raw material has been diverted. In these circumstances respectfully following the above decision of the Hon ble Rajasthan High Court Union of India v. Bhilwara Spinning Ltd. 2005 (8) TMI 30 - HIGH COURT RAJASTHAN AT JODHPUR - Decided against Revenue.

Summary

Issues:
- Appeal against denial of Modvat/Cenvat credit for imported raw material due to quantity discrepancies.
- Interpretation of Modvat credit availability for short-received goods not used in manufacturing.
- Assessment of penalty under Section 11AC of the Central Excise Act, 1944 for excess Modvat/Cenvat credit.

Analysis:
1. Appeal against denial of Modvat/Cenvat credit: The appeal was filed by the Revenue challenging the order of the Commissioner (Appeals) denying Modvat/Cenvat credit to the respondents for the period from 12/97 to March 2002. The issue arose due to a discrepancy in the quantity of imported raw material, Ethylene-Di-Chloride (EDC) and Ethylene, as per the Ullage report and storage tank outturn reports. The Revenue contended that the respondents were not entitled to credit for the short quantity found in the storage stock, alleging it was not used in the manufacture of excisable goods.

2. Interpretation of Modvat credit availability: The Tribunal analyzed the merits of the case and found that the total shortage during the disputed period was only 0.08%. The goods in question were in liquid form received through a pipeline, and the quantity was determined by dip reading at storage tanks. Referring to a judgment of the Hon'ble Rajasthan High Court, the Tribunal held that credit cannot be denied for short-received goods if there is no diversion and the loss is considered normal.

3. Assessment of penalty under Section 11AC: The Tribunal further delved into the question of law regarding Modvat credit availability for short-received goods not used in the final product manufacturing. It was held that if there is no diversion of goods covered under the invoices and the entire consignment has been used as input in the end product without any misuse, then Modvat credit should not be curtailed. The Tribunal emphasized the importance of evidence through invoices to establish the correlation between payment of duty and goods used in manufacturing. Consequently, the Tribunal dismissed the appeal, stating that since Modvat credit was rightfully availed, the question of penalty for over-availment did not arise.

In conclusion, the Tribunal dismissed the appeal by the Revenue, emphasizing that there was no allegation of diversion of imported raw material. The decision was based on the principles established in previous judgments, particularly the ruling of the Hon'ble Rajasthan High Court. The Tribunal upheld the availability of Modvat credit for the imported raw material, considering the normal loss during the manufacturing process and the absence of deliberate misuse.