2015 (11) TMI 669 - AT - Central Excise

Denial of CENVAT Credit - Penalty u/s 11AC - Held that - Appellants are using different types of raw material viz. MS Scrap, Pig Iron, Sponge Iron etc. However separate raw-materials account for each item admittedly has not been maintained at all. It is strange and surprising that raw-material account was maintained in a consolidated manner. The appellants have not disputed the short found at the time of stock taking which was undertaken on 3 days. According to the Register the balance should have been 2651.122 MTs whereas physical stock was found to be only 978.704 MTs. It is surprising that such a huge shortage which works out to almost 73% was not noticed by the melter or by the Managing Director or by the Central Excise in-charge over a period of 4 years. This itself shows that in spite of the huge difference between the actual raw material available and the stock as per the Register, the assessee did not take any steps whatsoever to check whether the accounting is being done correctly or not. The method adopted by the assessee for maintaining consolidated raw material account itself is a strange method of accounting. It was also admitted that from July 2008 onwards they were not even maintaining the record of use of raw materials on which cenvat credit has been taken. The claim that raw material accounting was done on a hypothetical basis is not at all logical in view of the fact that the melter of the appellant knew how much quantity is required for the furnace each heat to be charged. The melter could have and probably has given the correct consumption detail and also output details for different charge into the furnace, the capacity of which is 5 tonnes. Then there is no answer to the question why accounting was done in such a manner. Under these circumstances how there could be so much difference has not been explained at all. According to Shri. Raja Ramchander Rao, the Central Excise In-charge, the production and consumption figures were given by the melter. If this is so there could not be any shortage at all. Under these circumstances no other conclusion can be reached other than the conclusion that appellant has failed to account for the raw material on which cenvat credit has been taken and show that the same has been used for manufacture of finished goods on which duty has been paid. This is an obligation cast on the manufacturers who take cenvat credit and it is not necessary for the department to prove clandestine removal of raw material or finished products. The obligation to show that the raw materials have been used for the purpose they were obtained and accounted for in accordance with law is on the assesee and in this case they have failed to discharge the same. Therefore the appeal has no merits - Decided against assessee.

Summary

Issues:
1. Shortage of raw materials found during stock verification.
2. Disputed demand for cenvat credit and penalties imposed.
3. Maintenance of raw material accounts and accounting discrepancies.
4. Appellant's contention of no shortage and burning loss calculation.
5. Lack of evidence of diversion or clandestine sale of raw materials.
6. Failure to maintain separate raw material accounts and discrepancies in stock.

Analysis:
1. The case involved a shortage of raw materials discovered during a surprise stock check at the appellant's factory. The physical stock was found short by a significant amount, leading to a demand for cenvat credit and imposition of penalties under the Central Excise Act 1944.

2. The appellant disputed the shortage, claiming that they accounted for burning loss inaccurately. They argued that the actual burning loss was higher than previously estimated. The appellant presented revised worksheets and expert opinions to support their stance against the demand and penalties.

3. The issue of maintaining raw material accounts emerged as a crucial point of contention. It was revealed that the appellant did not maintain separate accounts for various raw materials used in manufacturing. The lack of proper record-keeping and discrepancies in stock raised questions about the accuracy of the accounting practices followed by the appellant.

4. The appellant's argument of no shortage was countered by the authorities, emphasizing the obligation of the appellant to account for raw materials accurately. The discrepancies in stock, coupled with the absence of proper records, led to the dismissal of the appellant's claims regarding the shortage and burning loss calculations.

5. The absence of evidence supporting any diversion or clandestine sale of raw materials further weakened the appellant's case. The authorities highlighted the appellant's failure to demonstrate the proper utilization of raw materials for manufacturing finished goods on which duty had been paid, as required by law.

6. Ultimately, the tribunal ruled against the appellant, citing the failure to maintain accurate raw material accounts, discrepancies in stock, and the inability to prove the lawful utilization of raw materials as reasons for dismissing the appeal. The judgment underscored the importance of proper record-keeping and compliance with legal obligations in availing cenvat credit and excise duty payments.