2018 (12) TMI 1164 - AT - Central Excise

CENVAT Credit - inputs in the form of HR/CR Coils and sheets - Held that - Such inputs were used by the appellants in the fabrication of body on the chassis supplied by M/s Tata Motors and other customers. For fabrication of body, the supplier, M/s Tata Motors, had supplied the design and drawing to the appellants. This also contained a bill of materials required for the fabrication of such body - The investigation led to the conclusion that the appellants have shown consumption of materials in excess of materials as per bill of materials supplied by Tata Motors. This became the basis for the prima-facie conclusion of Revenue that the appellant has shown as consumed more materials than what was required for fabrication of chassis. Whether the Department is justified in ordering reversal of cenvat credit for inputs to the tune 1685.696 MT? - Held that - As per the Scheme of the Cenvat Credit Rules, 2004, the credit on inputs is eligible in respect of goods used in the factory of the manufacturer of final product. It is not in dispute that the HR/CR sheets are inputs, which are required in the fabrication of body in the appellant s factory. The credit also have been availed on the basis of invoices for which the payments have been made through proper Banking Channels. The investigation undertaken at the supplier s end, has not brought on record any solid evidence to establish that the inputs were never received in the appellants factory. It is nobody s case that any part of the inputs have been diverted clandestinely outside without use in the factory for manufacture. In view of the above, it cannot be concluded that the appellant has irregularly availed credit on inputs without use of the same in the manufacture. Two invoices for a total quantity of about 76 MT - Held that - The credit for the same has since been reversed inasmuch as the material has been received/returned. Revenue is not justified in ordering reversal of cenvat credit - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged excess availing of Cenvat credit by M/s Bhawani.
2. Use of design and drawings from M/s Tata Motors as a reference for material consumption.
3. Stocktaking discrepancies by Departmental Officers.
4. Use of raw materials for plant maintenance.
5. Payment through banking channels for raw materials.
6. Imposition of penalties on suppliers under Rule 26 of Central Excise Rules, 2002.

Detailed Analysis:

1. Alleged Excess Availing of Cenvat Credit:
The main appellant, M/s Bhawani, was accused of purchasing 3107.241 MT of steel metal but only requiring 1421.545 MT for manufacturing, leading to a demand for reversal of Cenvat credit on the excess 1685.696 MT. The Department alleged that M/s Bhawani availed credit on the basis of photo copies of invoices and claimed materials not received.

2. Use of Design and Drawings from M/s Tata Motors:
M/s Bhawani argued that the actual consumption of materials varied from the design and drawings provided by M/s Tata Motors due to differences in manufacturing processes and the gauge of materials used. They contended that thicker gauge sheets were sometimes used, and the actual consumption should be considered, not just the design specifications.

3. Stocktaking Discrepancies:
The Department's stocktaking on 02.03.2006 did not account for materials in process on the shop floor, closing stock balances, weight differences in models, and process losses. M/s Bhawani argued for a process loss allowance of 10% to 12% and provided detailed reconciliation to explain the discrepancies.

4. Use of Raw Materials for Plant Maintenance:
M/s Bhawani claimed that part of the raw materials was used for repair and maintenance within the factory, which should not lead to denial of Cenvat credit.

5. Payment Through Banking Channels:
M/s Bhawani made payments for raw materials through banking channels, arguing this demonstrated the materials were received. The absence of specific freight payment details should not imply non-receipt of materials.

6. Imposition of Penalties on Suppliers:
Penalties were imposed on suppliers under Rule 26 of the Central Excise Rules, 2002. M/s Bhawani contended that penalties were not legally justified as the provision for imposing penalties on facilitators without actual supply was inserted only from 01.03.2007. They cited various judicial decisions to support their argument.

Conclusion:
The Tribunal concluded that the Department's investigations and conclusions were based on assumptions and discrepancies without solid evidence. The actual consumption of materials could vary from the design specifications, and process losses were reasonable. The Chartered Accountant's certificate supported M/s Bhawani's claims. The Tribunal set aside the impugned order, concluding that the reversal of Cenvat credit was not justified, and allowed the appeals.