2012 (9) TMI 872 - AT - Central Excise

Duty demand - Shortage in inputs - During investigation of premises of Assessee on persuasion of the department, the Assessee paid a sum of Rs. 3,67,500 - After investigation was complete, the respondent filed a refund claim - Commissioner (Appeals) held that shortage found in the factory at the time of investigation are none other than process loss and sanctioned refund claim - Held that - The variations in shortage have not been properly investigated by the Revenue. There is no evidence to substantiate that these raw materials had been cleared clandestinely. On the contrary there appears force in Appellants contention that there was processing loss during the manufacturing of final product. Further the appellants invited the attention towards photocopy of the relevant pages of Encyclopaedia of polymers Science and Engineering (Vol. 4). In support of their contention that polypropylene was susceptible to losses, degradation when subjected to heating. Thus cent percent recovery of Polypropylene was not possible in making P.P. Films therefrom. In any case the percentage loss of raw material consumption has been of the order of 0.415%, 0.223% and 1.057% in the year 1993-94, 1994-95 & 1995-96 respectively. The total percentage loss in the three financial years has been only 0.612% i.e. even less than 1% which is quite insignificant. Appellants have been declaring such losses of raw material in the manufacturing process in their annual declarations filed in 3CD Forms to the Income Tax authorities during the years earlier to and after to the subject years. No demand of modvat credit involved on such loss of raw material consumption has since been raised by the department in respect of 3CD Form submitted by the Appellants in the years subsequent to the subject years. This point also goes in the Appellants favour. The Appellants have also explained the aspect of processing loss as deposed in the affidavit sworn on 25-9-2001 of Shri I.R. Balanagendran, the Executive (RND) of the Appellants. Attention is also invited attention towards the Board s Circulars/letters dated 17-10-1986 and 15-1-1988 wherein the admissibility of modvat credit on the melting loss/Slag etc. has been clarified. In view of these Circulars it can be safely inferred that the credit of duty on inputs cannot be denied on the ground that the part of the input was contained in the waste and scrap which might even exempted from excise duty. Therefore, no modvat credit could have been disallowed to the appellants if the said credit was attributable to the inputs lost in the manufacturing process - Decided against Revenue.

Summary

Issues:
- Duty demand on shortage of inputs
- Admissibility of refund claim
- Processing loss explanation by the respondent
- Evidence supporting process loss

Analysis:

Duty Demand on Shortage of Inputs:
The case involved appeals by the Revenue against orders where no demand was upheld against the respondent due to the explanation of shortages being attributed to processing loss during the manufacturing of BOPP films. The departmental officers found shortages in the factory and persuaded the respondent to pay duty on the shortages. Subsequently, a refund claim was filed, but a show-cause notice was issued for duty demand on the premise of clandestine removal of goods. The Commissioner (Appeals) confirmed the duty demand, which was challenged before the Tribunal. The Tribunal remanded the matter, directing consideration of the processing loss explanation by the respondent. After reviewing the submissions and evidence, the Commissioner (Appeals) concluded that the shortages were indeed process loss, dropping the duty demand and sanctioning the refund claim.

Admissibility of Refund Claim:
The respondent had initially paid a sum towards duty on shortages found in their factory, which was later claimed as a refund. The refund claim was kept pending due to the show-cause notice for duty demand. However, upon consideration of the processing loss explanation, the Commissioner (Appeals) sanctioned the refund claim of the amount paid during the investigation period. This decision was based on the evidence provided by the respondent regarding the nature of processing loss in the manufacturing process.

Processing Loss Explanation by the Respondent:
The respondent, a manufacturer of BOPP films, explained that the shortages found in their factory were due to process loss during the manufacturing process. The Commissioner (Appeals) considered the technical material submitted by the respondent, including references to the Encyclopaedia of Polymer Science, to support the claim of processing loss. The percentage of processing loss was found to be minimal, ranging from 0.415% to 1.057% in different financial years, which was deemed insignificant. The Commissioner (Appeals) acknowledged the evidence presented by the respondent and concluded that the shortages were indeed process loss, thereby dropping the duty demand and upholding the refund claim.

Evidence Supporting Process Loss:
The Revenue contended that the respondent failed to provide supporting evidence for the process loss, arguing that the shortages were due to clandestine removal of goods. However, the Commissioner (Appeals) reviewed the records, submissions, and technical material presented by the respondent. The Commissioner (Appeals) found merit in the respondent's explanation, citing the minimal percentage of processing loss and the consistency in declaring such losses in annual declarations to tax authorities. The Commissioner (Appeals) also referenced relevant circulars and legal precedents to support the conclusion that the shortages were indeed process loss, thereby rejecting the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeals, agreeing with the Commissioner (Appeals)'s findings based on the detailed analysis of the processing loss explanation provided by the respondent and the lack of evidence supporting clandestine removal of goods.