2016 (7) TMI 297 - AT - Central Excise

Demand of duty on loss of inputs on the ground that excessive loss of excisable goods arising in the course of repacking, warrants recovery the proportionate input credit and that is recoverable. - assessee purchased scouring power and detergent powder manufactured by its sister concern for repacking in different denomination packs as well as cleared. Held that - Revenue s primary allegation is that because there was an increased trend of losses of finished goods during repacking was shown by the appellant as tabulated aforesaid, the proportionate CENVAT credit has to be disallowed on input. But there is no evidence on record to show that the goods subjected to MRP has been cleared clandestinely. That rules out the allegation against the appellant and there shall be no presumption of any diversification of the output repacked in absence of any cogent evidence and the contrary. In absence of any credible evidence to show that the goods came from the sister concern of the appellant has gone elsewhere without suffering duty on MRP basis, the appellant should not suffer any arbitrary percentage of disallowance of CENVAT credit apparent from show cause notice Mere statistical figure shall not serve purpose by any scientific calculation. The calculation should demonstrate that there was breach of law supported by evidence. That is not the present case. Added to this, without any evidence on record to show that neither the input nor the repacking goods have gone elsewhere causing evasion of duty, the input credit denied is unsustainable. - Demand set aside - Decided in favor of asessee.

Summary

Issues: Alleged recovery of proportionate input credit due to excessive loss of excisable goods during repacking.

Analysis:
1. The appellant, recognized as a manufacturer under section 2(f)(iii) of the Central Excise Act, 1944, repacked excisable goods purchased from its sister concern for different denomination packs. The goods were subject to Central excise duty under the MRP scheme.
2. Revenue alleged that the appellant's repacking process resulted in excessive loss of excisable goods, warranting recovery of proportionate input credit enjoyed on packing materials.
3. The appellant countered the allegations by explaining that the nature of the goods received for repacking was prone to moisture and handling losses, exacerbated by the old machines used. The appellant argued that the losses were within tolerable limits.
4. Revenue claimed that the losses observed from 2007-08 to 2011-12 were unjustifiable and calculated the proportionate inadmissible CENVAT credit based on the alleged losses.
5. The appellant denied any deliberate evasion, attributing the increasing trend of losses to various factors, and challenged Revenue's lack of evidence supporting the allegations of diversion or misuse of input credit.
6. Revenue contended that the increasing losses indicated a tendency to divert goods or input for unauthorized use, justifying the recovery of proportionate CENVAT credit and emphasizing the appellant's burden to prove eligibility for credit.
7. After hearing both sides and examining the records, the primary issue revolved around disallowing CENVAT credit based on the increasing trend of losses during repacking.
8. The Tribunal found no evidence of clandestine clearance of goods subjected to MRP, refuting Revenue's allegations of diversion without substantial proof.
9. While acknowledging the losses and their increasing trend, the Tribunal emphasized the lack of evidence linking the losses to deliberate evasion or misuse, highlighting Revenue's failure to provide substantial proof.
10. Citing the Apex Court judgment in Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd., the Tribunal emphasized the indefeasible nature of CENVAT credit and the absence of a direct correlation between raw material and final product for credit utilization.
11. The Tribunal reiterated the requirement for credible evidence to support accusations of breach of law, emphasizing the insufficiency of mere statistical figures without substantial proof.
12. Consequently, the Tribunal set aside the impugned order, allowing the appeal due to the lack of concrete evidence supporting the recovery of proportionate input credit based on alleged losses during repacking.