2018 (8) TMI 1576 - AT - Central Excise

CENVAT Credit - input services - The department has demanded the amount for the reason that the inputs were not utilised fully in the manufacturing process - Held that - It is seen from records that appellants themselves have recorded loss/shortage of inputs after receipt of the input to the factory. Thus it is clear that the appellants have not used the entire inputs received in the process of manufacture - Further the appellant has not explained heavy losses on materials like acetic acid (24.37%), formic acid (14.26%), calcium chloride (9.5%). Penalty - Held that - Since the issue being an interpretational one and the appellants having litigated the same upto the Hon ble High Court, penalty not sustainable and is set aside. Appeal allowed in part.

Summary

Issues:
1. Eligibility of Cenvat credit on inputs not used in the manufacture of final products.
2. Claim of losses due to evaporation of inputs.
3. Interpretation of storage losses and penalty imposition.

Eligibility of Cenvat credit on inputs not used in the manufacture of final products:
The case involved the appellant, engaged in manufacturing additives for Lubricating oil, availing Cenvat credit on duty paid on inputs and service tax paid on input services. The issue arose when the department alleged that the appellant was not eligible for credit on inputs not fully utilized in the manufacturing process. The original authority and the Commissioner (Appeals) confirmed the demand, interest, and penalties. The appellant contended that losses were inevitable due to the nature of inputs and the manufacturing process. However, the records showed that the appellant did not use the entire inputs received in the manufacturing process. The Tribunal noted discrepancies in the claimed evaporation losses and upheld the demand, citing a previous judgment against the appellant.

Claim of losses due to evaporation of inputs:
The appellant claimed losses due to evaporation of inputs such as Ethyl hexanol, Ethylene carbonate, Gassapol, OLOA 2505A, OLOA 200, stored in heated storage tanks. The department disputed the credit on the quantity of such losses. The appellant argued that the losses were inevitable due to the handling of huge volumes of materials. However, the Tribunal found that the appellant had not used the entire inputs received in the manufacturing process. The appellant's explanation for heavy losses on materials like acetic acid, formic acid, and calcium chloride as storage losses was not accepted, leading to the dismissal of their appeal.

Interpretation of storage losses and penalty imposition:
The Tribunal, following a previous decision in the appellant's own case, upheld the demand for the credit on inputs not fully utilized in the manufacturing process. However, considering the issue as interpretational and the appellant's litigation up to the High Court, the Tribunal deemed the penalty imposed as unwarranted and set it aside. Consequently, the impugned order was modified to set aside the penalty without disturbing the demand or interest, partially allowing the appeals with consequential reliefs, if any.