2017 (3) TMI 123 - AT - Central Excise

CENVAT credit - inputs - denial on the ground that the inputs found short were not used in or relation to the manufacturer of final products, therefore, the cenvat credit of the duty paid on these goods is not admissible to the appellant - Held that - there is no allegation against the appellant for diversion of inputs as such. Further, in some cases inputs were found excess and in some cases inputs were found short i.e. to the small variation of 0.22%/0.23% of the total inputs received - there is shortage of minor quantities i.e. 0.23%/ 0.22% of the total inputs which is within permissible limit, therefore, the cenvat credit cannot be denied to the appellant - appeal allowed - decided in favor of appellants.

Summary

Issues:
Appeal against denial of cenvat credit of inputs.

Analysis:
The appellant, engaged in manufacturing two-wheelers, availed cenvat credit on inputs and capital goods. The department questioned the inputs stock variation report, alleging that the shortage of inputs was not used in the final product's manufacture, leading to denial of cenvat credit. The appellant argued that all inputs were utilized, with minor discrepancies in stock. The appellant cited the Maruti Udyog Limited case, emphasizing that such minor shortages do not warrant credit denial. The respondent contended that the appellant failed to maintain records as per Cenvat Credit Rules, justifying the credit denial based on the Greaves Cotton Ltd. case.

Upon hearing both parties, the Tribunal noted no diversion of inputs and observed minor variations in input quantities. Referring to the Maruti Udyog Limited case, the Tribunal highlighted that discrepancies do not imply improper disposal of inputs, especially when excess inputs were also found. The Tribunal acknowledged the appellant's complex accounting system and concluded that shortages within tolerance limits do not indicate irregular credit utilization. Consequently, the demand was set aside, and the appeal was allowed, with a directive to return the deposited amounts.

The Tribunal further noted the Honorable Apex court's affirmation of the decision, emphasizing the immateriality of minor input shortages within permissible limits. The court recognized the appellant's accounting errors and the absence of clandestine removal of inputs, supporting the appellant's claim for Modvat Credit based on accurate input usage data. Given the minor input shortages and the absence of irregularities, the Tribunal upheld that cenvat credit cannot be denied, setting aside the impugned order and allowing the appeal with any consequential relief.