2014 (12) TMI 1081 - AT - Central Excise

Availment of ineligible Modvat credit - shortage of finished products which were not accounted for - clearance of goods without payment of duty - Held that - As regards the demand of ₹ 9.12 lakhs (approx.) being the Modvat credit involved on the raw materials found short and not used, we find that difference between the quantity of raw materials consumed and finished products manufactured is very negligible and below 0.5 % in all the cases. We also note that as per the standard input of norms, the percentage of wastage for perfumery products is much higher up to 50%. Compared to this, the process loss in the appellant s case is very low and, therefore, the explanation of processing loss of the material during the manufacturing process is reasonable and has to be accepted. Therefore, we do not find any merit in the contention of the Revenue that ₹ 9.12 lakhs is recoverable from the appellant. Accordingly, we set aside the same. In addition, an amount of ₹ 78,420/- has been confirmed in respect of the shortage of 1269 kgs which occurred at the job-worker s end out of 14,400 kgs of raw materials and this loss is also reasonable and, therefore, there is no reason for confirmation of duty demand on this count also. As regards the demand of ₹ 1,70,990/-, in the statement recorded under Section 14 of the Central Excise Act, 1944, Mr. J.V. Shah, Manager of the appellant firm had admitted to the clearance of finished products without payment of duty. Only at the time of reply to the show cause notice, new grounds were adduced claiming that the difference in finished product stock was on account of invisible loss and material lying in process. These objections were not raised when stock taking was done. In these circumstances, the plea of invisible loss and material lying in process cannot be accepted and, therefore, the confirmation of demand of ₹ 1,70,990/- has to be upheld with interest - Decided partly in favour of assessee.

Summary

Issues:
1. Modvat credit availed on input used in manufacturing final products.
2. Duty demand on shortage of finished products allegedly cleared without payment of duty.

Analysis:

Issue 1: Modvat Credit
The appellant, a manufacturer of perfumery products, contested the demand of &8377; 9,12,964.85 as ineligible Modvat credit on inputs used in production. The appellant argued that the difference between raw material consumption and finished product manufacture was minimal, well below 0.5%, attributing it to process loss. The appellant cited examples of standard input norms for perfumery products to demonstrate that their process loss was significantly lower, justifying the utilization of raw materials. The Tribunal acknowledged the negligible difference and the reasonable explanation provided by the appellant, rejecting the Revenue's claim for recovery of the amount. Additionally, a separate amount of &8377; 78,420/- related to a shortage at the job-worker's end was also deemed reasonable, warranting no duty demand.

Issue 2: Duty Demand on Shortage of Finished Products
Regarding the duty demand of &8377; 1,70,990/- on the shortage of 3419.80 kgs of finished products, the appellant contended that it was due to invisible loss, not warranting duty payment. The Revenue argued that the appellant admitted to clearing finished products without duty payment and failed to explain the shortage satisfactorily. The Tribunal noted that the appellant's new claims of invisible loss and material in process were raised belatedly, not during stock-taking. Consequently, the Tribunal upheld the duty demand, emphasizing the appellant's admission of non-duty payment for cleared products. Interest liability under Section 11AA of the Central Excise Act was also imposed on the appellant from the date of demand confirmation.

In conclusion, the Tribunal disposed of the appeal by setting aside the Modvat credit demand while upholding the duty demand on the shortage of finished products, emphasizing the importance of timely and consistent explanations during proceedings.