2017 (3) TMI 1445 - AT - Central Excise

CENVAT credit - inputs which were found short during the course of final appraisal of the stock taking of the assessee - Held that - there is no allegation against the respondent for diversion of inputs as such, in some cases inputs were found excess and in some cases inputs were found short i.e. to the small variation of 0.05% of the total inputs received - shortage of minor quantities i.e. 0.05% of the total inputs is within permissible limit - similar issue came up before this Tribunal in the case of Maruti Udyog Limited 2004 (6) TMI 155 - CESTAT, NEW DELHI , wherein it was held that If the shortages are within the tolerance limits fixed by an efficient management and certified to as within the norms by qualified accounting professionals, it would be unreasonable and unfair for tax authorities to take a different view - credit allowed - appeal dismissed - decided against Revenue.

Summary

Issues:
- Admissibility of cenvat credit on inputs found short during stock taking.

Analysis:
The case involved an appeal by the Revenue against the allowance of cenvat credit to the assessee on inputs found short during stock taking. The respondent, engaged in manufacturing two-wheelers, availed cenvat credit on inputs and capital goods used in production. The dispute arose when the department contended that the inputs found short were not utilized in the manufacturing process, thus challenging the admissibility of cenvat credit. The Revenue initiated proceedings against the respondent, leading to the appeal.

The Revenue argued that the respondent failed to maintain records as per Rule 7(4) of the Cenvat Credit Rules, 2004, justifying the denial of cenvat credit. They relied on the decision of Greaves Cotton Ltd. to support their stance. On the other hand, the respondent's counsel contended that despite minor shortages of inputs, all materials were used in the manufacturing process without diversion. They highlighted the extensive supply chain involving numerous vendors and minor discrepancies in input quantities.

After hearing both parties, the tribunal found no evidence of input diversion by the respondent. It noted minor variations in input quantities, with some excess and some shortages, amounting to a negligible 0.05% difference. The tribunal referenced a previous case involving Maruti Udyog Limited, where a similar issue was addressed. In that case, the tribunal emphasized the importance of proper accounting and reconciliation of inputs, especially in complex manufacturing operations. The tribunal concluded that the minor discrepancies did not warrant the denial of cenvat credit, as they fell within acceptable limits.

Additionally, the tribunal cited the Hon'ble Apex court's affirmation of a similar order, emphasizing the respondent's transparent accounting practices and the absence of any clandestine removal of inputs. The court highlighted the balancing act between shortages and excesses of inputs, ultimately supporting the respondent's claim for cenvat credit. The tribunal also considered a previous order in the respondent's favor, further validating the allowance of cenvat credit.

In the final judgment, the tribunal upheld the initial decision, dismissing the Revenue's appeal. The tribunal found no substantial grounds to overturn the ruling, considering the minor nature of the input shortages and the respondent's compliance with accounting standards and legal requirements.