2017 (3) TMI 165 - AT - Central Excise

CENVAT credit - shortage of input - denial of credit on the input of 6 MTs found short - Held that - merely for smaller quantity found short by the internal auditor and reported in 3CD report, credit cannot be denied - appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of Cenvat credit based on shortage of 6 MTs of intermediate input.

Analysis:
The appellant, engaged in manufacturing Chemical Additives for lubricant oil, faced a show cause notice proposing denial of Cenvat credit on 6MTs of input found short during an internal audit. The adjudicating authority upheld the demand, leading to an appeal before the Commissioner(Appeals) and subsequently to the tribunal.

The appellant's counsel argued that the shortage was due to handling, processes, and stock taking methods, not actual removal or short receipt of input. The counsel cited several judgments supporting the allowance of minor variations in stock quantities, emphasizing that the shortage was only 0.3% of the total stock handled during the financial year.

On the other hand, the Revenue representative reiterated the findings of the lower authority, stating that the admitted shortage of 6 MTs justified the denial of credit.

After considering both sides' submissions and reviewing the record, the tribunal found that the 6 MT shortage represented a minimal 0.3% of the total stock handled, with inherent possibilities of evaporation and process losses for the nature of the input. The tribunal noted that there was no evidence of clandestine disposal of the shortage and referenced the judgments cited by the appellant's counsel to support the allowance of minor variations in stock quantities without disallowing Cenvat credit.

Ultimately, the tribunal set aside the impugned order, allowing the appeal and ruling that denial of credit solely based on a small quantity found short in the internal audit report was unwarranted.