2013 (4) TMI 247 - AT - Central Excise

Assessee is manufacturing MS ingots from duty paid steel scrap and taking Cenvat credit on such scrap. Revenue visited the premises of assesse and during stock taking there was shortage of finished goods and scrap out of accounted stock. Revenue made out a case that the excise duty is payable on the quantity of finished goods found short and Cenvat credit is to be reversed when the quantity of scrap found short and accordingly demanded the duty under Rule 14 of Cenvat Credit Rules and penalty. Held that - It is also possible that the shortage is due to the fact that the appellant has been taking credit without actual receipt of raw material. Tribunal note that no such evidence has been adduced by Revenue. No co-relation of quantity of raw materials consumed and quantity of final products manufactured over a reasonable period is examined. In the absence of such corresponding evidence or any evidence of clandestine removal and the nature of commodity involved, tribunal inclined to give the benefit of doubt to the appellant and hold that the demand is not sustainable. Thus the appeal of the assessee is allowed.

Summary

Issues:
1. Duty demand on finished goods found short
2. Cenvat credit reversal on shortage of scrap
3. Appeal against penalty imposition
4. Method of estimation during stock taking
5. Discrepancy in raw material stock estimation
6. Reversal of Cenvat credit on raw material shortage

Analysis:

Issue 1: Duty demand on finished goods found short
The case involved a visit by revenue officers to the factory of the assessee, where a shortage of finished goods and scrap was noted. A duty demand of Rs. 11,382 on finished goods and Rs. 4,79,558 under Cenvat Credit Rules was confirmed. The Commissioner (Appeals) set aside the penalty but upheld the duty demand. The Tribunal held that the small shortage of 3.733 MTs of finished goods did not indicate clandestine removal, especially considering the nature of the product and the stock quantity. The duty demand and penalty on finished goods were deemed not maintainable.

Issue 2: Cenvat credit reversal on shortage of scrap
Regarding the shortage of duty paid scrap, the appellant argued that the shortage was due to the approximate method of stock taking and errors in estimating material used in manufacturing ingots. The Revenue contended that the shortage should lead to Cenvat credit reversal. The Tribunal noted the difficulty in accurately ascertaining stock and material usage over time. Without evidence of clandestine removal or a correlation between raw materials consumed and final products manufactured, the demand for reversal of Cenvat credit on the shortage of scrap was set aside.

Conclusion:
The Tribunal allowed the appeal of the assessee by setting aside the orders of the lower authorities. The appeal filed by Revenue was rejected. The judgment emphasized the importance of proper evidence and correlation in determining duty demands and Cenvat credit reversals, especially in cases involving stock discrepancies and estimation challenges during manufacturing processes.