2015 (2) TMI 466 - AT - Central Excise

Denial of CENVAT Credit - Shortage of raw material - Marginal difference noticed - Held that - In this case although at the time of annual stock taking the respondents found shortage of raw materials and taken the same stocks in the account books. But there is no allegation of diversion of inputs which were found short at the time of annual stock taking. Further as per the Circular No. 367/87/1997 dated 19.12.1997 the CBEC, the issue was examined and was explained that for measurement of the goods for variation of temperatures and densities. From the facts of the case it is not coming out whether the respondent has done adjustment as per the Circular dated 19.1.1997 of the CBEC but it is submitted by the learned counsel that these are on actual basis. - variance in measurement is marginal. Impugned period is 2000-01 and the Show Cause Notice came to be issued in October 2003 by invoking the extended period of limitation. In these circumstances, the case law relies upon by the learned A.R. in the case of Philips Carbon Black Ltd vs CCE reported in 2013 (3) TMI 140 - CESTAT KOLKATA also gives the benefit of limitation to the respondent. Credit admissibility dependent on various factors to see whether entire consignment received in factory without diversion and tolerance for hygroscopic, volatile and such other cargo to be allowed as per industry norms excluding unreasonable or exorbitant claims. It was also held that marginal variation due to weighment by different machines to be ignored if within tolerable limits. In these circumstances I do not find any infirmity in the impugned order. - Following decision of CCE vs Bhuwalka Steel Industries Ltd 2009 (11) TMI 177 - CESTAT, CHENNAI LB - Decided against Revenue.

Summary

Issues:
- Appeal against dropping of proceedings based on shortage of raw materials for Cenvat credit entitlement.

Analysis:
The appeal concerns the dropping of proceedings by the Commissioner (Appeals) against the respondent regarding the denial of Cenvat credit on raw materials due to shortages found during annual stock taking. The Revenue contends that as the raw materials were not used in the final product, Cenvat credit should be denied. The learned A.R. cites a Tribunal decision to support this argument. On the other hand, the respondent argues that the shortages were due to variations in density caused by temperature changes during the day, and they have used the inputs for manufacturing without diversion. The respondent relies on a larger Bench decision to support their claim for Cenvat credit.

The Tribunal examined the case, noting that while shortages were found during stock taking, there was no allegation of diversion of inputs. The Circular No. 367/87/1997 by the CBEC was referenced to explain variations in measurement due to temperature and density changes. The Tribunal reviewed the invoices and found marginal variances in measurement. The Commissioner (Appeals) identified deficiencies in the Show Cause Notice and order, emphasizing the lack of clarity on quantity shortages and calculation of duty demanded. The Commissioner also acknowledged the temperature-related discrepancies in measuring lubricating oil quantities.

In assessing the case law cited by the Revenue, the Tribunal found that the decision in the referenced case did not consider the marginal nature of the measurement variations as in the present case. Moreover, the Tribunal highlighted the relevance of the extended limitation period invoked by the Revenue and its applicability. The Tribunal upheld the decision of the Commissioner (Appeals), dismissing the Revenue's appeal and affirming the entitlement of the respondent to Cenvat credit based on the circumstances and industry norms regarding measurement tolerances and credit admissibility.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the dropping of proceedings against the respondent regarding the denial of Cenvat credit on raw materials due to shortages found during stock taking, based on the considerations of measurement variations, industry norms, and the limitations period invoked by the Revenue.