2017 (5) TMI 383 - AT - Central Excise

CENVAT credit - clandestine removal - there was an attempt of burglary for clandestine removal of Nickel (input) from the appellant factory - case of Revenue is that inputs (Nickel) has been removed from the factory on which credit has been availed. Rule 3(5) provides that when inputs are removed as such, without being used in manufacture of final products, the assessee is liable to reverse the CENVAT credit availed on such inputs - Held that - The adjudicating authority has not relied upon the General Manager s report which reports removal of 23 tonnes of Nickel. The adjudicating authority states that it is based on tampered documents. When the department has issued show-cause notice basing upon the figures stated in such report, the adjudicating authority cannot brush aside such report lightly. It has to be supported by reasons. It is not disputed that the documents regarding the issuance / removal of Nickel were lost in fire. It is also revealed that such fire was not by accident but articulated. Whether these incidents of clandestine removal of Nickel and articulated fire with intent to destroy documents will constitute deliberate acts of suppression has to be examined. All these issues need to be reconsidered - matter on remand. The plea of appellant that they have reversed the credit prior to utilisation has to be looked into - matter on remand. Appeal allowed by way of remand.

Issues Involved:
1. Irregular availment of CENVAT credit on Nickel.
2. Misappropriation and removal of Nickel from the factory.
3. Validity of the show-cause notice invoking the extended period of limitation.
4. Demand of duty, interest, and penalty.
5. Allegation of suppression of facts with intent to evade duty.

Detailed Analysis:

1. Irregular Availment of CENVAT Credit on Nickel:
The appellants, manufacturers of gas turbines, steam turbines, and pumps, availed CENVAT credit on inputs and capital goods. During an audit, it was noticed that the appellants had availed irregular credit of ?86.52 lakhs on 23 tonnes of Nickel, which was misappropriated by employees. The appellant argued that the credit was not reversed since the removal was unauthorized and unknown to the company. The Tribunal noted that the demand was raised for reversing the credit on inputs not used in manufacturing final products, as required by Rule 3(5) of CENVAT Credit Rules, 2004.

2. Misappropriation and Removal of Nickel from the Factory:
The case involved an attempt of burglary and a fire incident in the Common Material Management Stores (CMM) of the appellant's factory. Investigations revealed that 23 tonnes of Nickel were removed by manipulating Indirect Material Requisition Slips (IMRS). The appellant reversed the credit for 5411 kgs of Nickel based on a report by the Senior Executive Committee, which was accepted by the adjudicating authority.

3. Validity of the Show-Cause Notice Invoking the Extended Period of Limitation:
The appellant contended that the show-cause notice issued on 18/02/2011, invoking the extended period of limitation, was not sustainable as the company had no knowledge of the misappropriation. The Tribunal observed that the show-cause notice was based on the removal of 23 tonnes of Nickel, while the adjudicating authority confirmed the duty on 5411 kgs. The Tribunal found that the adjudicating authority mechanically adopted the Senior Executive Committee’s report without independently verifying the quantum of irregular credit.

4. Demand of Duty, Interest, and Penalty:
The appellant reversed the credit of ?21,15,313/- for 5411 kgs of Nickel before the issuance of the show-cause notice. The Tribunal noted that the adjudicating authority accepted the computation of 5411 kgs of Nickel removed and imposed an equal amount of penalty. The appellant argued that the demand of interest and penalty was against the law as the credit was reversed before utilization. The Tribunal acknowledged the need to reconsider this aspect in light of relevant judgments.

5. Allegation of Suppression of Facts with Intent to Evade Duty:
The Department argued that the appellant company was guilty of suppression of facts as the removal of Nickel and the fire incident were not reported. The Tribunal noted that the fire was articulated to destroy documents, indicating deliberate acts of suppression. The Tribunal emphasized the need to re-examine whether these incidents constituted deliberate suppression with intent to evade duty.

Conclusion:
The Tribunal found that the adjudicating authority had not independently verified the quantum of irregular credit and had relied on the Senior Executive Committee’s report. The Tribunal deemed it fit to remand the matter to the adjudicating authority for reconsideration, leaving all issues open. The impugned order was set aside, and the appeal was allowed by way of remand.

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