2019 (4) TMI 1330 - AT - Central Excise

CENVAT Credit - the credit taken on such inputs subject to process loss, was not reversed to the extent relatable to the purported quantity of inputs lost - Rule 4 (5)(a) of the Cenvat Credit Rules, 2004 - HELD THAT - There will be certain conversion loss as no process can be undertaken on 100% conversion basis. If the resultant product has to meet the standard specification, the quantity loss invisibly could not be said to have been removed from the premises in terms of Rule 4(5)(a) of the Rules rendering its invocation erroneous on the facts of the present case. Allegation and demand to the contrary is articulated in the impugned order and the adjudication orders are therefore, baseless contrary to law and cannot sustain the demand sought to be imposed upon the appellant. In the absence of any contravention, there can be no basis for recovery of any duty by means of credit reversal or otherwise or interest thereon, in terms of Rule 14 of the Rules, read with Sections 11A and 11AA/AB of the Act. There can also be no penalty imposed upon the appellant in terms of Rule 15 (2) of the Rules read with Section 11AC of the Act. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to disallowance of Cenvat credit on inputs due to process loss and imposition of penalty under Cenvat Credit Rules, 2004.

Analysis:
The appeal was against the Order-in-Appeal alleging inadmissible Cenvat credit and penalty imposition under Rule 15(2) of the Cenvat Credit Rules, 2004. The appellant, a manufacturer of spare parts for the cement industry, utilized inputs like M.S. Plates and Rounds at its factory and sent some to job workers for processing. The Spot Memo alleged failure to reverse credit on lost inputs. The Adjudicating Authority disallowed credit and imposed a penalty, upheld by the Commissioner (Appeals), leading to the Tribunal appeal.

The appellant argued that process loss in manufacturing spare parts is inevitable, with job workers specifying process loss without interrogation. The appellant contended that the disputed duty amount was minimal compared to the overall process loss, denying any clandestine clearance. The appellant provided a calculation showing a 2.72% process loss.

The Revenue reiterated the lower authorities' orders.

Upon review, the Tribunal found that some conversion loss is inevitable in any process, especially to meet standard specifications. The invocation of Rule 4(5)(a) for credit reversal was deemed erroneous in this case. The demand for duty and penalties were considered baseless and contrary to law. No contravention was found, leading to the dismissal of recovery, interest, and penalty under Rule 15(2) of the Rules. The issue of limitation was raised by the appellant, but as the appeal was allowed on merit, the Tribunal did not delve into the limitation aspect.

Consequently, the Tribunal set aside the impugned orders, allowing the appellant's appeal.