2019 (7) TMI 1797 - AT - Central Excise

CENVAT Credit - variance in the inventory of Cenvat Input Credit - shortage of inputs - Rule 3(5B) of CCR - extended period of limitation - HELD THAT - Rule 3(5B) ibid specifically provides that If the value of any input or capital goods before being put to use on which CENVAT credit has been taken is written of fully or where any provision to write off fully has been made in the books of accounts then the manufacturer or service provider as the case may be shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods. A plain reading of the said rule makes it clear that it is applicable only in cases where goods are available in the factory and only a book entry has been made to write off the value of the said goods which is not the allegation of the department against the Appellant. It is not the case that the inputs which were found short were not received or were clandestinely removed. We also cannot lose sight of the fact that there were excesses also in inputs which were brought to the notice of the department but these excesses were ignored by the department. This fact itself establishes the bonafide of the appellants in claiming CENVAT credit on the basis of figures disclosed by them in respect of inputs which were used by them. Although there is a finding that the appellants have suppressed the facts with intent to wrongfully avail and utilize the inadmissible Cenvat credit but the same has not been substantiated by producing any evidence. Merely making allegations of suppression or intention is not sufficient unless the same is established beyond reasonable doubt. The inputs were undisputedly received in the factory of the appellants and upon receipt they were properly accounted for - rule 3(5B) ibid cannot be applied on the facts of this case as the entire case of the department is that the goods are not available in the factor whereas for the application of the said rule the goods have to be available in the factory and only a book entry is to be made to write off the value of the said goods. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to disallowance of Cenvat Credit and demand confirmation for specific periods.

Analysis:
The appeal challenged an order disallowing Cenvat Credit and confirming a demand for specific periods based on discrepancies in inventory. The Appellant, a manufacturer of motor vehicle parts, faced shortages in Cenvat Input Credit due to discrepancies in stock maintenance by a service provider, resulting in demands amounting to significant sums. Show cause notices were issued, leading to the impugned order confirming the demands along with interest and penalties.

Legal Arguments:
The Appellant argued that the shortages were negligible considering their operations' magnitude and should not result in denial of Cenvat credit. They maintained that errors in stock maintenance were inevitable due to the volume of transactions and defended their sophisticated accounting system's accuracy. The Appellant contended that the shortages were theoretical, commercially acceptable, and did not affect the inputs' proper receipt and usage. They refuted the applicability of certain rules invoked by the Revenue, emphasizing the correctness of the Cenvat credit claimed on eligible inputs.

Rule Interpretation:
Rule 3(5B) was central to the dispute, requiring payment if Cenvat credit on written-off inputs is taken. The Tribunal clarified that this rule applied only to goods available in the factory with a mere book entry for write-off, which did not align with the department's allegations against the Appellant. The Tribunal also considered the immateriality of a 0.59% input shortage, emphasizing the commercial practice principle and the lack of evidence supporting the Revenue's suppression claims.

Precedent and Decision:
Relying on previous decisions, the Tribunal found in favor of the Appellant, citing similar cases where demands were deemed unsustainable due to lack of evidence regarding missing inputs. The Tribunal highlighted the Appellant's transparency in reporting excesses and the absence of proof for intentional misuse of Cenvat credit. Consequently, the impugned order was set aside, and the appeal was allowed with appropriate relief as per law.

This comprehensive analysis of the judgment showcases the legal arguments, rule interpretations, precedent considerations, and the final decision in favor of the Appellant regarding the disallowance of Cenvat Credit and demand confirmation for the specified periods.