2017 (12) TMI 693 - AT - Central Excise

CENVAT credit - the SCN was issued on the basis of assumption that the closing stock of finished goods lying in stock was manufactured with CENVAT scrap and therefore the appellant is liable to reverse the CENVAT credit taken on the inputs whereas the stand of the appellant from the very beginning was that closing stock of finishing goods was manufactured out of non-CENVAT inputs - Held that - in the impugned order, Commissioner(Appeals) has not given any reason as to how the Department entertained the view that the closing stock of finished goods is manufactured out of CENVAT inputs. Besides this, the calculation sheets furnished by the appellant were also not considered - the rate of duty during the relevant time was 8% whereas the demand has been confirmed on the assumption that the rate of duty was 10%. The impugned order which is based on assumptions and presumption and is not sustainable in law - appeal allowed - decided in favor of appellant.

Issues involved:

1. Appeal against Commissioner(Appeals) order upholding Order-in-Original regarding CENVAT credit and duty payment.
2. Availing value-based exemption for SSI under Notification No.08/2003-CE and subsequent non-payment of CENVAT credit equivalent.
3. Allegations of contravening Rule 11(2) of CENVAT Credit Rules, 2004 by not paying CENVAT credit on finished goods.
4. Show-cause notice issued for recovery of proportionate inputs/raw materials used in production of finished goods.
5. Confirmation of demand of duty, interest, and penalty by original authority.
6. Appeal filed before Commissioner(Appeals) rejected, leading to the present appeal.

Analysis:

1. The appeal challenged the Commissioner(Appeals) order upholding the Order-in-Original related to the appellant's availing of value-based exemption for Small Scale Industries (SSI) under Notification No.08/2003-CE. The appellant, engaged in manufacturing "cast iron chamber covers & scrap," crossed the SSI limit during the financial year 2009-10, leading to the utilization of CENVAT credit on inputs and raw materials and the clearance of final goods on duty payment. Subsequently, the appellant opted for exemption from duty, becoming liable to pay the CENVAT credit equivalent present in the inputs, work in progress, and finished goods as of 31/03/2010.

2. The show-cause notice was issued, proposing recovery of &8377;1,12,723 for proportionate inputs/raw materials used in the production of finished goods under Rule 14 of CENVAT Credit Rules, 2004, along with interest and penalty. The original authority confirmed the duty demand, leading to the appellant's appeal before the Commissioner(Appeals), which was rejected, prompting the current appeal.

3. During the proceedings, the appellant contended that the impugned order lacked legal sustainability as it failed to consider the evidence on record. The appellant asserted that the closing stock of finished goods as of 31/03/2010 was mainly manufactured from non-CENVATable scrap, as they had ceased procuring CENVAT inputs by the end of the financial year 2009-10. The appellant's consultant argued that the assumptions made by the authorities regarding the use of CENVAT inputs in the closing stock lacked basis, and the appellant's calculations using the FIFO method indicated a lower CENVAT credit amount than presumed.

4. The appellant's consultant further highlighted discrepancies in the rate of duty assumed for the demand calculation, pointing out that the actual rate at the relevant time was 8%, not 10% as considered in the demand. The appellant's submissions, including working details and rate of duty clarification, were disregarded by the Commissioner(Appeals) without adequate reasoning, leading to the appellant's successful appeal against the order based on unsustainable assumptions and presumptions.

5. The appellate authority, after considering the submissions and records, found that the show-cause notice was premised on the assumption that the closing stock of finished goods contained CENVAT scrap, contrary to the appellant's claim of non-CENVAT inputs usage. The lack of reasoning behind the Department's view, non-consideration of appellant's calculation sheets, and the incorrect rate of duty applied further supported the decision to set aside the impugned order, allowing the appellant's appeal.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the reasoning behind the appellate authority's decision to overturn the Commissioner(Appeals) order based on unsustainable assumptions and lack of proper consideration of evidence.

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