2009 (7) TMI 623 - AT - Central Excise

Cenvat Credit- shortage of inputs- the respondents are engaged in the manufacture of Colour Monitor. On 7-2-2003, the Central Excise Officers visited the respondent s factory and conducted stock verification. The said officers detected shortage of 298 pieces of 15 CRT duty paid inputs involving Cenvat credit of Rs.70,328/-. The representative of the respondents explained that the said goods were damaged during the manufacturing process. The Original Authority confirmed the demand of duty and appropriated the amount as deposited by them. He also imposed penalty of equal amount under Section 11AC of Central Excise Act, 1944. The Commissioner (Appeals) set aside the adjudication order. Hence, the Revenue filed this appeal. Held that- the Original Authority had not disputed that the inputs got damaged during the manufacturing process. Thus, it is evident that the inputs were used in or in relation to manufacture of the final product, within the factory of production. The inputs on which credit has been availed are used for final product destroyed during process of manufacture, would cover in or in relation to manufacture of final product , there is no requirement of reversal of credit on such input. Thus, there is no reason to interfere the order of the Commissioner (Appeals). Accordingly, the appeal filed by the Revenue is rejected.

Issues:
Revenue appeal against Commissioner (Appeals) order setting aside adjudication order regarding shortage of duty paid inputs in the manufacture of Colour Monitor.

Analysis:
The case involved the Revenue appealing against the Commissioner (Appeals) order that set aside an adjudication order regarding the shortage of duty paid inputs in the manufacture of Colour Monitor by the respondents. The Central Excise Officers detected a shortage of 298 pieces of 15" CRT duty paid inputs involving Cenvat credit. The respondents initially could not explain the shortage but later clarified that the goods were damaged during the manufacturing process. The Original Authority confirmed the duty demand and imposed a penalty under Section 11AC of the Central Excise Act, 1944. The Revenue contended that the shortage was admitted by the respondents during stock verification, justifying the appropriation of duty and penalty. However, the respondents argued that there was no requirement to reverse credit on inputs damaged during the manufacturing process, citing relevant case law.

The Advocate for the respondents reiterated the findings of the Commissioner (Appeals) and highlighted that the inputs were damaged during the manufacturing process of the final products, which exempted them from reversing the credit. The Commissioner (Appeals) observed that there was no provision directing the reversal of credit on damaged inputs used in the manufacturing process. The decision was supported by the Larger Bench's ruling in the case of Grasim Industries and other relevant Tribunal decisions. The Tribunal's findings emphasized that the inputs used in the manufacture of goods destroyed by natural causes or unavoidable accidents need not be reversed, as per Rule 49 of the Central Excise Rules, 1944. The Tribunal's analysis clarified that remission of duty on destroyed goods does not necessitate the reversal of credit on inputs used in their manufacture.

After considering the arguments from both sides and examining the records, the Member (J) found that the Original Authority acknowledged that the inputs were damaged during the manufacturing process, indicating their use in the production of the final product. The Member (J) concluded that since the inputs were utilized in or in relation to the manufacture of the final product destroyed during the manufacturing process, there was no requirement for the reversal of credit on such inputs. Therefore, the order of the Commissioner (Appeals) was upheld, and the Revenue's appeal was rejected. The judgment was pronounced on 14-7-2009 by Member (J) Shri P.K. Das.

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