2022 (6) TMI 1175 - AT - Central Excise

Recovery of CENVAT Credit - inputs - alleged non-receipt of inputs in excess of the tolerance margin of 0.4% at the facility of the appellant as evidenced by their own goods receipt note (GRN) - HELD THAT - Availment of CENVAT credit of duties paid on inputs is enabled by rule 3 of CENVAT Credit Rules, 2004. The credit taken by the appellant is the duty of central excise paid by the supplier as recorded in the invoices and any difference in quantity, manifested in goods receipt note (GRN) on actual weighment at place of receipt, does not alter the tax thus borne on the goods except when credit accrues to the supplier through appropriate debit notes raised by recipient. No such document is placed on record. There is no evidence of any of inputs having been returned to supplier or rerouted elsewhere. The lower authorities are, themselves, not certain that duties, to the extent of quantity not received, have been re-credited by the manufacturer as is evident from the finding referred to. It is only by adverse presumption that the liability under rule 14 of CENVAT Credit Rules, 2004 has been ordered for recovery. Furthermore, rule 3 of CENVAT Credit Rules, 2004 does not offer any adjustment towards tolerance or allowance and, yet, the lower authorities have deigned to provide for some arbitrary margin; implicit in the sheer arbitrariness is the principle of spreading the entire invoice value, and corresponding duty discharged, over the quantity of the goods as actually delivered. Tolerance limits are prescribed according to the nature of the goods and for the purpose of computation wherever such quantity is critical. Insofar as CENVAT credit is concerned, the underlying foundation is discharge of identical amount of duty on inputs procured for manufacture or for rendering of service on the part of supplier. Reliance can be placed in appellant own case M/S. SAVITA OIL TECHNOLOGIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR. 2019 (6) TMI 1672 - CESTAT MUMBAI , where it was held that the decision of Tribunal in NEERA ENTERPRISES VERSUS COLLECTOR OF CENTRAL EXCISE, CHANDIGARH. 1998 (5) TMI 119 - CEGAT, NEW DELHI , COMMISSIONER OF C. EX., RAJKOT VERSUS BOMBAY DYEING MFG. CO. LTD. 1997 (10) TMI 141 - CEGAT, MUMBAI and host of others on similar lines preclude the recovery of duty in consequence of difference between quantity paid for and actual ascertainment on receipt. Considering the circumstances and, in particular, the appellate orders in their own cases of identical recovery for other periods, the liability confirmed by original authority, and upheld in the impugned order, is without authority of law - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Recovery of irregularly availed credit on inputs
- Tolerance limit of 0.4% for received goods
- Applicability of CENVAT Credit Rules, 2004
- Adjustment for compensatory restitution from insurance claim
- Inclusion of loss in transit in assessable value

Analysis:
1. The dispute in the appeal revolves around the recovery of irregularly availed credit on inputs by M/s Savita Oil Technologies Limited. The recovery was ordered due to the finding that credit had been irregularly availed on inputs received in their factory, with discrepancies between the quantity indicated in the invoice and that in the goods receipt notes (GRNs) recording the actual offloading from tankers.

2. The recovery was adjudicated by segregating consignments exceeding the permissible tolerance of 0.4%. Two notices were issued covering different periods, and the recovery was confirmed by the original authority under rule 14 of CENVAT Credit Rules, 2004, along with interest and penalties. The first appellate authority upheld the recovery with interest but set aside the penalty, leading to the impugned order for upholding the recovery and interest for the two periods.

3. The appellant cited previous Tribunal decisions in their favor, emphasizing that recoveries were set aside in similar disputes. The appellant argued that the recovery was not supported by law and pointed to relevant precedents such as Neera Enterprises v. Collector of Central Excise, Chandigarh and Commissioner of Central Excise, Rajkot v. Bombay Dyeing & Mfg Co. Ltd.

4. The issue of tolerance limits for received goods was crucial in the judgment. The impugned order held that any loss beyond the 0.4% tolerance limit is recoverable through debit notes, emphasizing the acceptable norm for lubricating oils received in tankers.

5. The judgment analyzed the applicability of CENVAT Credit Rules, 2004, highlighting that the credit taken by the appellant should match the duty paid by the supplier as recorded in the invoices. The absence of evidence regarding re-crediting duties for quantity not received led to adverse presumptions for recovery under rule 14.

6. The judgment also considered adjustments for compensatory restitution from insurance claims, noting that such adjustments are crucial for fastening liability in recovery proceedings. The appellant's argument regarding the adjustment of compensatory restitution received upon settling insurance claims was significant in challenging the recovery.

7. Additionally, the judgment referenced the decision in Petronet LNG Ltd, emphasizing that loss in transit should not be included in the computation of assessable value to avoid higher tax liabilities. The judgment concluded that the recovery confirmed by the original authority lacked legal authority based on the circumstances and previous appellate orders.

8. In the final decision, the appeal was allowed by setting aside the impugned order, highlighting the insufficiency of legal grounds for the recovery of irregularly availed credit on inputs by M/s Savita Oil Technologies Limited.