2015 (7) TMI 585 - AT - Central Excise

Denial of CENVAT Credit - Availment of credit on inputs received in tankers as well as in packaged condition in drums and barrels - Shortage of goods - Held that - there was no shortage between the physical stock and the book stock for more than 70% of the period. Not even a single or minor variation in the stock, whereas only for particular months (shown in bold) there is a huge shortage. If the difference is due to the measurement method between the actual weighment and the massflow meter is to be taken there is no consistency as indicated in the above table. If at all there is any inputs remained in the pipelines in a continuous process and then the same should have been reflected every month. There cannot be abrupt and sudden shortage of inputs only in particular months during the year. For example, in the case of input OLOA 200 and Glissipal 1000 , the shortage accounted are very substantial in terms of quantity, which was worked out by the adjudicating authority in his order. There is no uniformity in the shortage of inputs and it is evident that this shortage cannot be attributed to the difference in measurement because of heating of liquids, or evaporation loss, or remnant of inputs in pipelines as claimed by the appellants. As rightly held by the adjudicating authority, the inputs are having high viscosity and not volatile in nature. Considering the fact that the shortage of inputs accounted only for specific months and not in a continuous manner it is established that the shortage of inputs is not on account mere difference in variation of weigment methodology and the said quantity of inputs have not been used in the manufacture of final products after receipt of the inputs in appellant s factory. Further, it is evident that it is not the case that the shortage is of very meager or negligible quantity. - loss is not due to evaporation or process loss and also the percentage of shortage is more than 5.56%. Therefore, case laws relied upon by the appellants clearly distinguished and the same are not applicable to the facts of the present case. Appellants are failed to put forth any justifiable reason that the shortage is purely due to the difference in actual weighment and the massflow meter as there is no uniformity. Whereas, in the present case very high abnormal shortage of inputs ranging from 3.0 Tons to 12.658 Tons, in respect of OLOA 200 and in the case of Glissopal 1000, from 3.3 Tons to 13.51 Tons cannot be treated as process loss or evaporation or calibration or weighment loss. Therefore, the appellants are not eligible for the modvat/cenvat credit on the quantity of inputs which are not used in the manufacture of final products and the impugned orders confirming demand of reversal of credit on the shortage of inputs are liable to be upheld. As regards the imposition of penalty, the adjudicating authority has rightly invoked the extended period as the appellants failed to record the shortage in the statutory records in RG 23 and part1 and part2 during the period from 2000-2001, where the appellants are required to maintain statutory records. The appellants are also failed to show the shortage of stocks even under the cenvat rules. As clearly brought from the impugned orders that the appellants deliberately adjusted the shortage in their internal records as consumption of inputs at the end of the month. I find that the appellants failed to inform the department at any time on the shortage of inputs. But for the department verification of appellant records it would not have come to the light. Therefore, it is a clear case of suppression of facts where the appellants deliberately adjusted the shortage as if it is consumed in the manufacture of final products at the end of every month and created fresh opening balance at every month without making reversal of credit on the shortage of inputs. Therefore, the adjudicating authority in respect of first two appeals has rightly invoked the extended period. - Decided against assessee.

Summary

Issues Involved:
1. Shortage of inputs not used in the manufacture of final products.
2. Demand for reversal of Cenvat credit on the shortage of inputs.
3. Imposition of penalty.
4. Invocation of the extended period for demand.

Detailed Analysis:

1. Shortage of Inputs Not Used in Manufacture of Final Products:
The appellants, manufacturers of additives for lubricating oil, faced scrutiny regarding the shortage of inputs. The inputs, received in liquid and solid forms, were subject to monthly stock-taking. The appellants argued that the shortage was due to evaporation, heating, and measurement discrepancies. The department, however, noted that the shortage was not continuous but occurred sporadically, indicating potential discrepancies in the appellants' records.

2. Demand for Reversal of Cenvat Credit on the Shortage of Inputs:
The adjudicating authority confirmed the demand for reversal of Cenvat credit amounting to Rs. 37,25,361/- due to the shortage of inputs. The appellants contended that the losses were within permissible limits and cited various case laws to support their claim. However, the Tribunal found that the shortage percentages were significantly higher (approximately 5.58%) than those in the cited cases, where the shortages were minimal (0.05% to 1.5%). The Tribunal concluded that the appellants failed to justify the shortages as process losses or measurement discrepancies.

3. Imposition of Penalty:
The adjudicating authority imposed penalties equivalent to the credit amount under Rule 57(I)(4) and 57 AH (2) of the Central Excise Rules, and Rule 13 of the Cenvat Credit Rules, read with Section 11AC of the Central Excise Act, 1944. The Tribunal upheld these penalties, noting that the appellants had not recorded the shortages in the statutory records and had adjusted the shortages as consumption at the end of each month, indicating deliberate suppression of facts.

4. Invocation of the Extended Period for Demand:
The Tribunal upheld the invocation of the extended period for demand, as the appellants had not informed the department about the shortages and had adjusted the shortages internally. The Tribunal referenced the Hon'ble High Court of Jharkhand's decision in Pre-stressed Udyog (I) Pvt. Ltd., which supported the imposition of penalties under Section 11AC for shortages detected during verification.

Conclusion:
The Tribunal dismissed the appeals, confirming the demand for reversal of Cenvat credit and the imposition of penalties under Section 11AC. The penalties under Rule 13 and 15 of the Cenvat Credit Rules were set aside, considering the imposition of penalties under Section 11AC. The judgment emphasized the importance of maintaining accurate records and the consequences of failing to report shortages to the department.