2017 (11) TMI 1099 - AT - Central Excise

CENVAT credit - shortage of inputs - The contention of the learned AR is that as it is physically verified stock and shortage has been detected, therefore, they are not entitled to CENVAT Credit - Held that - it is admitted fact that the shortage in quantity is only 0.35% of the total purchases - respondent is a manufacturing unit and such shortages are of meager in nature - the learned Commissioner (Appeals) has made observations and held that the demand is merely based on the shortages detected during physical tallying, the entire quantity of inputs on which CENVAT credit was availed were received in the the factory is also not disputed and clandestine removal is not alleged by the department - appeal dismissed - decided against Revenue.

Summary

Issues:
- Entitlement to CENVAT Credit on shortage of inputs during physical verification.

Analysis:
The case involved a dispute regarding the entitlement to CENVAT Credit on shortages of inputs found during physical verification. The appellant submitted a physical inventory report showing discrepancies in quantity, leading to a show-cause notice from the Revenue to deny CENVAT Credit. The adjudicating authority upheld the denial, but the Commissioner (Appeals) allowed the credit due to the meager nature of the shortages, amounting to 0.35% of total inputs used. The Revenue contended that physical verification revealed shortages, making the appellant ineligible for CENVAT Credit. However, the Commissioner (Appeals) noted that the shortages were negligible compared to the overall material handled by the appellant.

The Commissioner (Appeals) highlighted that the shortages were a result of various factors such as accounting errors, human errors, and complexities in handling a large volume of materials. The Commissioner emphasized that the shortages were insignificant in comparison to the total material handled by the appellant. Referring to previous tribunal decisions, the Commissioner concluded that the percentage of difference in this case was lower than in previous cases where such differences were allowed. Moreover, there was no evidence of diversion of inputs or clandestine removal, and all received inputs were used in the factory without dispute. Therefore, the Commissioner held that the demand for reversal of CENVAT Credit based on inventory shortages was unwarranted.

The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal and disposing of the respondent's cross-objection accordingly. The Tribunal concurred with the Commissioner's assessment that the shortages were negligible and did not justify the reversal of CENVAT Credit. Consequently, the appellant was found not liable for any penalty, and the impugned order was upheld.