2018 (11) TMI 974 - HC - Central Excise

Disallowance of CENVAT Credit wrongly availed - one to one correlation between inputs and final product - usage of stock on first in first out basis - Held that - It is required to be noted that as such on scrutiny of the month wise account for the year 201011 the stock of the inputs declared by the assessee and considering the material on record, it is observed that stock of inputs declared as on 14.3.2011 did not tally. Therefore, the on the stocks of inputs which did not tally, the authority is justified in rejecting the claim of the CENVAT Tax Credit. There cannot be any dispute that manufacturer shall be entitled to the CENVAT Tax Credit on the stock of inputs. The authorities below have not committed any error in rejecting the CENVAT Tax Credit - appeal dismissed - decided against appellant.

Summary

Issues:
1. Denial of Cenvat Tax Credit by authorities.
2. Maintaining "one to one corelation" between inputs and final product.
3. Use of stock on "first in first out" basis.

Analysis:
1. The appellant, engaged in steel wire manufacturing, sought Cenvat Tax Credit amounting to ?1,35,133 on inputs in stock and finished goods. However, a discrepancy of ?61,953 was found in the input quantity during verification, leading to a show cause notice for disallowance of wrongly availed credit. The demand was confirmed by the adjudicating authority, Commissioner (Appeals), and the Tribunal. The appellant challenged this denial of credit before the High Court.

2. The appellant argued that the denial of Cenvat Credit for not maintaining a "one to one corelation" between inputs and finished goods was legally incorrect. They contended that the requirement of maintaining such a correlation was unfounded in the Cenvat Credit Rules, 2004. Additionally, the appellant disputed the imposition of a "first in first out" basis for utilizing stock, asserting that this approach was erroneous and unsustainable.

3. The High Court observed that the authorities had rightfully denied Cenvat Tax Credit to the appellant due to discrepancies in the stock of inputs. It was noted that only inputs matching the records would qualify for the credit to prevent clandestine removal of goods. The Court emphasized that manufacturers are entitled to Cenvat Credit only on inputs that align with the account records. The Court rejected the appellant's reliance on a Supreme Court decision, stating it was inapplicable to the present case. Consequently, the Court upheld the lower authorities' decision to reject the Cenvat Tax Credit claim.

4. The High Court, after hearing arguments from both parties, concluded that the appeal lacked merit and dismissed it. The Court affirmed that the denial of Cenvat Tax Credit by the authorities was justified based on the discrepancies in the stock of inputs and upheld the decision to reject the appellant's claim. The Court found no substantial legal question arising from the case and ruled in favor of the department, dismissing the appeal.