2015 (10) TMI 2452 - AT - Central Excise

Disallowance of CENVAT Credit - credit on the quantity of input/coal which was short due to washing of coal in Coal Washery - Held that - Washing of coal is an indispensable process for using the coal in the manufacture of Sponge Iron. The objection raised is that only lesser quantity of coal after wash is received in the factory and proportionate credit on such loss cannot be allowed to the appellant. The loss of coal during the process of washing is inevitable and the shortage caused is not in the hands of the appellant - Undeniably the quantity of 2,182,910 MT of coal was short due to washing loss which occurred at the job worker s end during the process of coal washing. The Board s Circular No. 267/136/87-CX-8, dated 15.1.1988 is with regard to somewhat similar loss of material as waste which occurs during the process of manufacture. The Board has clarified that credit cannot be denied on the ground that part of inputs is contained in the slag and other invisible losses. In Bharat Radiators Ltd case (2002 (3) TMI 685 - CEGAT, MUMBAI) it was held that denial of credit on burning loss was not sustainable. Since the issue stands settled by the above judgments, following the dictum laid in the above judgments I hold that the denial of credit is unjustified. - Decided in favour of assessee.

Summary

Issues:
Credit disallowed on quantity of input/coal lost during washing process.

Analysis:
The appellant, engaged in manufacturing Sponge Iron, faced disallowance of credit on coal lost during washing at Coal Washery. The appellant received coal from SECL, sent it for washing on job work basis, resulting in a 3% weight loss due to impurity removal. The Department contended that credit wasn't admissible on the lost quantity of coal. A show cause notice alleged wrongful credit availing on 73,828.00 MT of coal, as only 71,645.09 MT was received post-washing. The Order-in-Original dropped proceedings, but the Commissioner (Appeals) disallowed the credit, leading to this appeal.

The washing of coal is essential for using it in Sponge Iron manufacturing, with the objection being the lesser quantity received post-wash in the factory, affecting credit allowance. Despite inevitable coal loss during washing, the appellant couldn't control the shortage.

The issue's legality had precedent in various judgments like Tata Motors Ltd. Vs. CCE and CCE Vs. Atul Fastners Ltd., where credit denial on material loss was deemed unjustified. The quantity of 2,182,910 MT lost during washing was akin to material loss during manufacturing, as clarified by Board's Circular No. 267/136/87-CX-8. Following established jurisprudence, the denial of credit was deemed unjustified, leading to setting aside the impugned order and allowing the appeal with any consequential reliefs.

In conclusion, the judgment overturned the credit disallowance on the lost coal quantity during the washing process, citing legal precedents and established principles governing credit allowance on material loss during manufacturing processes.