2018 (2) TMI 10 - AT - Central Excise

CENVAT credit - shortage of the goods detected during the transition period of the long standing practice in the month of November 2007 - processing loss - clandestine removal - Held that - In the case of Tata Motors Limited Vs. Commissioner of Central Excise, Jamshedpur 2010 (10) TMI 458 - CESTAT, KOLKATA , the Tribunal allowed the Cenvat Credit on the quantity found short on account of processing loss at the hand of job workers - There is no allegation of removal of shortage materials in any manner. The processing loss is inevitable during the manufacture of the finished goods. Thus, there is no reason to deny Cenvat Credit on such processing loss. Demand of SAD on Customs - Held that - the appellant contended that they have paid the amount attributable to SAD along with interest and penalty of 25% of the SAD. The appellant is contesting only the demand of ₹ 15,96,309.00 and penalty and interest thereon - the impugned Order is modified to the extent of demand of Cenvat Credit of ₹ 15,96,309.00 along with interest and penalty are set aside. Appeal allowed in part.

Summary

Issues:
Alleged suppression of material facts and non-reversal of duty on inputs.

Analysis:
The case involved the appellant, engaged in manufacturing lubricants and grease, who received raw materials from a supplier for job work. The dispute arose when a Show Cause Notice was issued, alleging suppression of material facts and non-reversal of duty on inputs. The Adjudicating authority confirmed the demand of Cenvat Credit, along with interest and penalty, which was upheld by the Commissioner (Appeals).

During the hearing, the appellant argued that a change in practice in November 2007 led to a transition period where alleged shortages were detected. The appellant claimed that the shortage was due to processing loss occurring since 1998, citing a percentage of 2.4%. Additionally, a fire incident in 2006 resulted in the destruction of finished goods and partly processed materials. The appellant referred to relevant case laws to support their contentions.

The Tribunal observed that the appellant failed to produce evidence of using the allegedly short inputs in the manufacture of finished goods. It was noted that the appellant did not follow the procedures laid down in the Cenvat Credit Rules. The Tribunal also considered precedents where losses or shortages were deemed permissible in certain manufacturing processes, such as lubricant oil production.

Referring to previous judgments, the Tribunal highlighted cases where credits were allowed for processing losses incurred during job work. The appellant provided statements of input receipts and claimed processing loss, which was accepted by the Tribunal. The denial of Cenvat Credit on alleged shortages was deemed unjustified, and the demand for Cenvat Credit, along with interest and penalty, was set aside.

Regarding the demand for Special Additional Duty (SAD) on Customs, the appellant contended that they had paid the amount attributable to SAD, along with interest and penalty. The Tribunal modified the impugned Order to set aside the demand for Cenvat Credit, interest, and penalty. The appeal was disposed of accordingly.