2016 (4) TMI 327 - AT - Central Excise

Demand of duty alongwith interest - Disallowance of Cenvat credit for short received coal as the quantity was not found short in other consignments - Coal was sent to Coal Washery for processing of coal so that it can be used in the manufacturing process - Appellant contended that The loss of weight due to removal of ash content, mud, fines occurred due to such coal washing process has to be considered as arising during the course of manufacture of final product and credit has to be allowed. Held that - it is found from the records that since the other consignments of coal were not sent for washing, there was no weight loss. However, since the disputed nine consignments were sent for washing, the loss in weight has occurred. Thus, the reasoning advanced by the revenue cannot be a defensible ground for disallowance of Cenvat credit. The coal was sent for washing and the loss in weight occurred due to its processing as apparent from the records of the appellant. It is also found that the certificate issued by the Central Institute of Mining & Fuel Research, Bilaspur Unit (Council of Scientific & Industrial Research), Bilaspur (Chhattisgarh) working under Ministry of Science & Technology, Govt. of India clarifies that there is positive correlation between percentage of Ash reduction & loss of coal volume i.e. yield of washed coal and that on 1 % of Ash reduction in Coal there is volume loss of approx. 2.5%. Also as per IEA Clean Coal Centre of International Energy Agency loss in coal washery accounts for 20 - 30% loss through the separation process for mineral matter from the coal. Therefore, the reasons canvassed by the revenue for disallowing cenvat credit is not sustainable and also demand is not sustainable. Imposition of penalty - Held that - there is no ground to impose penalty under Rule 15 of the Cenvat Credit Rules, 2004 as the demand is itself not sustainable. Further in SCN, no facts have been brought on record which can show the malafide intention or suppression on the part of the appellant. Therefore, that the penalty imposed on the appellant is also not sustainable. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Disallowance of Cenvat credit for short receipted quantity of coal.
2. Justification for sending coal to washery and loss in weight during washing process.
3. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Disallowance of Cenvat credit for short receipted quantity of coal
The case involved a dispute regarding the disallowance of Cenvat credit by the Revenue due to the short receipted quantity of coal in the factory of the Appellant. The Central Excise Audit wing detected that in 9 consignments, lesser quantity of coal was received compared to the invoiced quantity. The adjudicating authority confirmed the demand for disallowance of Cenvat credit along with interest and penalty. The Commissioner (Appeals) upheld the decision, leading to the appeal before the Tribunal.

Issue 2: Justification for sending coal to washery and loss in weight during washing process
The Appellant argued that the coal procured from mines contained foreign materials like mud, dust, and ash, making it unsuitable for direct use in manufacturing Sponge Iron. They sent such coal to the washery for washing, resulting in a loss in weight during the process. The Appellant contended that the loss should be considered as a manufacturing loss, and the duty paid on the purchased quantity of coal should be eligible for Cenvat credit. They supported their argument with references to previous Tribunal decisions and documents from the coal supplier and washery.

The Tribunal examined the facts and found that the coal was indeed sent for washing to make it usable in the manufacturing process. The loss in weight due to the removal of impurities during washing was considered as part of the manufacturing process. The Tribunal disagreed with the Revenue's argument that the credit should be disallowed because other consignments were not sent for washing. It was established that the loss occurred during the washing process, and the Appellant's reasoning was deemed valid. The Tribunal also referred to certificates and research findings supporting the correlation between ash reduction and loss of coal volume during washing, further strengthening the Appellant's case.

Issue 3: Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004
The Revenue sought to impose a penalty under Rule 15 of the Cenvat Credit Rules, 2004, alleging malafide intention or suppression on the part of the Appellant. However, the Tribunal found no grounds for sustaining the penalty as the demand itself was deemed unsustainable. The Tribunal highlighted that no facts were presented in the Show Cause Notice to demonstrate malafide intention or suppression by the Appellant. Therefore, the penalty imposed on the Appellant was also deemed unsustainable.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal in favor of the Appellant with consequential relief, if any, as per the law. The judgment was pronounced on 22.1.2016 by S. K. Mohanty, Member (J) of the Appellate Tribunal CESTAT NEW DELHI.