2017 (3) TMI 1204 - AT - Central Excise

Confiscation of seized WIP (Work in progress) materials found in excess along with imposition of penalty - Held that - no physical verification of stock was done during the past 4 years in the appellant s premises. We also note that the officers recorded shortage of 315 Mts. of scrap. As already noted in the operation of a kind undertaken by the appellant the emergence of M.S. scrap is continuous and the identity of an item as a scrap or as M.S. items further usable has to be considered before arriving at the conclusion of excess in WIP or shortage in scrap - The whole exercise of the Revenue is based on the arithmetical calculation and stock taking undertaken in the premises of the appellant. No consideration was given to the nature of industry and actual process of manufacture accounting and clearance of various items by the appellant. To sustain demand of duty on the basis of alleged clandestine removal or to deny credit on shortage of items the evidences available in this case are not sufficient or reasonable - demand withheld. CENVAT credit - construction service in connection with building of rest facility for labour within the factory - denial on the ground of nexus - Held that - The expenses are part of the appellant s business activities and in similar situation the credits on such input service have been allowed by the Tribunal - credit allowed. Clearance to other units - MS Plates - Held that - the same was confirmed on a general statement of the officials of the appellant without any further verification or corroboration. We find in the absence of any corroboration for such clearance and considering the work sheet contains reference to 13 Kg. and 15 Kg. we find no legal basis to sustain that demand. Appeal disposed off - decided in favor of assessee.

Summary

Issues Involved:
1. Confiscation of seized Work in Progress (WIP) materials.
2. Denial of CENVAT credit on raw materials found short.
3. Demand of duty on scrap found short.
4. Wrong availment of credit on input services used for civil construction.
5. Demand of duty on M.S. Plates cleared without reversal of credit.
6. Imposition of penalties on the main appellant and the Director.

Detailed Analysis:

1. Confiscation of Seized Work in Progress (WIP) Materials:
The lower authorities confiscated WIP materials found in excess during stock verification without identifying their nature or excisability. The impugned order did not clarify whether these materials were excisable items and under what tariff heading they fell. The Tribunal noted that WIP materials are goods in process, and their degree of progress varies. The lower authorities' approach of simple arithmetic calculation without considering the nature of the appellant’s operations was flawed. The Tribunal found merit in the appellant’s argument that distinguishing between WIP and scrap in their type of operation was challenging, and some intermixture was inevitable. The Original Authority erred by not appreciating the industrial operations correctly.

2. Denial of CENVAT Credit on Raw Materials Found Short:
The lower authorities disallowed CENVAT credit on raw materials found short by 1093 MT. The appellant argued that some M.S. items were used for packing and supporting heavy engineering items during transport, which were not separately accounted for. The Tribunal found the appellant's explanation logical and supported by documentary evidence. The Tribunal also considered the rolling margin allowed by IS Code 1852-1985 and the tolerance levels mentioned in the show cause notice. The Tribunal concluded that the alleged shortage was less than 1% of the total input items, and there was no justification for denying credit based on such minor discrepancies.

3. Demand of Duty on Scrap Found Short:
The lower authorities recorded a shortage of 315 MT of scrap. The Tribunal noted that in the appellant’s operations, scrap generation is continuous, and distinguishing between scrap and usable items was difficult. The Tribunal found that the intermixture of WIP with some scrap could not be ruled out and that the lower authorities did not consider the nature of the appellant’s operations. The Tribunal concluded that the shortage of scrap was not satisfactorily explained, but the overall evidence was insufficient to sustain the demand of duty based on alleged clandestine removal.

4. Wrong Availment of Credit on Input Services Used for Civil Construction:
The Tribunal examined the denial of credit of ?76,245/- availed towards input services used for constructing a labour dormitory within the factory. The lower authorities denied credit on the ground of no nexus with manufacturing activity. The Tribunal found that the construction of the dormitory within the factory premises was part of the appellant’s business activities. Referring to similar cases, the Tribunal allowed the credit, considering it related to business activities.

5. Demand of Duty on M.S. Plates Cleared Without Reversal of Credit:
The demand of ?1,69,804/- for M.S. Plates cleared to other units without reversal of credit was based on general statements without corroboration. The Tribunal found no legal basis to sustain the demand due to lack of evidence and corroboration.

6. Imposition of Penalties:
The Tribunal found no specific findings regarding the involvement of the Director in the alleged irregularities. The penalties imposed on the main appellant and the Director were not legally sustainable due to insufficient evidence.

Conclusion:
Except for the amount of ?3,46,229/- (credit on TMT bars for civil construction, which the appellant did not contest and had paid), the Tribunal found the other demands, reversals of credit, and penalties recorded by the Original Authority were not legally sustainable. The impugned orders were set aside to that extent, and the appeals were partly allowed.