2014 (11) TMI 779 - HC - Central Excise

Denial of CENVAT Credit - Shortage in stock - Suppression of facts - Invocation of extended period of limitation - Whether the loss on the inputs which was found out by the respondent during their annual stock taking and which was written off by them in their books of account should be considered as loss which is allowable under Rule 57D of the Central Excise Rules, 1944 or whether duty should be charged on such loss - Held that - Credit of duty cannot be denied or varied where input has become waste in or in relation to manufacture of final product; that the loss in stocks was detected in the annual stock taking which was accounted for by writing off the losses; the percentage of shortage found is less than 1.5% on an average for all the years in question; that after the inputs were received in the factory, there was a loss during the process of manufacture of finished products; the process of manufacture of finished products starts from the stage of taking raw material from the storage base to the factory and onward processes; under Rule 57D, on such losses, credit cannot be denied; a similar view was taken by it in the assessee s own case in Final Order No. A/373/2003/NB-C, dated 12-6-2003 2003 (6) TMI 144 - CESTAT, NEW DELHI where similar issue was considered by the Tribunal; that it is not the case of the department that inputs were cleared from the factory without payment of duty; Modvat credit in respect of losses to the extent of 10% is considered reasonable and is allowable; and therefore the Orders-in-Original are liable to be set aside - Decided against Revenue.

Summary

Issues:
Appeal under Section 35G of the Central Excise Act, 1944 challenging Final Order Nos. 771-774/2004 reversing Orders-in-Original related to Modvat credit irregularly availed, shortage of Zinc/Lead concentrates, extended period of limitation, recovery of duty, and penalty.

Analysis:
The respondent, a company manufacturing various products, filed for Modvat credit on duty paid on zinc and lead concentrates. Revenue officials alleged a shortage of concentrates during physical verification, leading to show cause notices for recovery of irregularly availed Modvat credit. Orders-in-Original confirmed duty levy, penalty, and interest, holding the respondent failed to account for the shortage. The Tribunal, however, allowed the appeals, prompting the Revenue to file the present appeal.

The Revenue contended that the Tribunal erred in accepting the respondent's explanation for shortages, arguing that losses occurred before the manufacture of final products and not during the manufacturing process. They disputed the percentage of shortage and the reasoning behind the losses. The Tribunal, on the other hand, upheld its decision, emphasizing that losses during the manufacturing process are allowable under Rule 57D of the Central Excise Rules. It noted that the percentage of shortage was minimal and that losses occurred during the manufacturing process, justifying the allowance of Modvat credit.

The High Court affirmed the Tribunal's decision, stating that the loss identified during stock taking and accounted for by the respondent should be considered allowable under Rule 57D. It highlighted that losses during the manufacturing process are permissible, citing a previous case with a similar issue. The Court found no substantial question of law, dismissing the Revenue's appeal and upholding the Tribunal's decision.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the allowance of losses during the manufacturing process and the validity of Modvat credit in such cases. The Court found no legal issues warranting further consideration, ultimately dismissing the Revenue's appeal.