2012 (12) TMI 927 - AT - Central Excise

Reversal of CENVAT Credit - appellant is sending inputs on Caustic Potash Pellets on which credit has been taken for conversion into Potash Pellets on job work basis to two job-workers - One Job worker returned 100% Credit whereas other returned only 90% - Held that - In the case of Bharat Radiators Ltd. 2002 (3) TMI 685 - CEGAT, MUMBAI it was held that weight of goods received back after processing from the job-worker reduced on account of processing cannot result in denial of credit. The facts in this case are covered by this decision. In the absence of any further investigation, the decision of the Tribunal cited above would cover the issue since the process loss is not shown as genuine. This is further confirmed by the fact that there is correspondence between the appellant and the job-worker that there is 10% process loss. In the absence of investigation and in view of the decision of the Tribunal which clearly is in appellant s favour I have to hold that the appellants have made out a prima-facie case for waiver of pre-deposit of all dues - Stay granted.

Summary

Issues:
1. Whether Cenvat credit can be denied on the basis of process loss by a job-worker.
2. Whether the principal can be held responsible for process waste/loss.
3. Whether duty can be charged to the job-worker or principal in case of incomplete return of processed goods.

Analysis:
1. The appellant sent inputs for conversion into Potash Pellets on job work basis to two job-workers. One job-worker returned 100% of the material, while the second returned only 90%. An amount was demanded for the 10% not returned, with interest and penalty imposed. The appellant argued that previous decisions support not holding the principal responsible for process loss on the job-worker's end. The second job-worker claimed 10% as normal process loss/waste and was paid less compared to the first worker. The appellant contended that without proper investigation, denial of Cenvat credit and imposition of penalty were unjustified.

2. The respondent argued that the 10% loss claimed by the second job-worker indicated the process loss might not be genuine. The difference in job-work charges also raised suspicions. It was suggested that duty could have been charged to the job-worker or principal for the unreturned quantity. However, the Tribunal referred to the case of Bharat Radiators Ltd. where it was held that reduced weight of goods received back from the job-worker due to processing does not warrant denial of credit. The Tribunal found the facts of the current case aligned with the precedent. The correspondence showing the 10% process loss further supported the appellant's case. In the absence of thorough investigation, the Tribunal ruled in favor of the appellant, waiving the pre-deposit of all dues and granting a stay against recovery during the appeal's pendency.