2017 (5) TMI 384 - AT - Central Excise

CENVAT credit - denial on the basis of some shortage recorded by M/s. Mahindra and Mahindra in their books of account, there is nothing as such recorded in the books of appellant - The department case is that whatever shortage is found in respect of input supplied by the principle to the appellant, credit to that extent is not admissible to the appellant accordingly credit was denied - Held that - shortage recorded by M/s. Mahindra and Mahindra Ltd was wrong. Subsequently they have clarified and corrected. It is also undisputed that department did not find any discrepancy in the books of the appellant. The appellant after verification of their stock and books came to the conclusion that actual shortage if at all is there, it is ₹ 44 Lakh, on which which they have admittedly reversed the credit - there is no reason that only on the basis of some shortage recorded in the books of M/s. Mahindra and Mahindra, why the credit should be disallowed to the appellant when there is no evidence of any manipulation on the part of by the appellant in their books of account and no evidence of diverting inputs otherwise - credit allowed - decided in favor of assessee.

Summary

Issues:
Denial of Cenvat credit based on shortage in books of account of the principal supplier.

Analysis:
The appellant, engaged in manufacturing excisable goods on a job work basis, faced denial of credit by the department due to shortages in the books of account regarding input supplied by the principal, M/s. Mahindra and Mahindra Ltd. The department contended that the credit was inadmissible corresponding to the shortages identified. The appellant argued that after thorough analysis, they found a shortage of only ?44 lakhs, for which they reversed the Cenvat credit of ?7,04,361. The adjudicating authority, however, denied credit based on the entire value of the shortage reported by M/s. Mahindra & Mahindra Ltd, amounting to ?36,36,848. The Commissioner(Appeals) upheld this decision, leading the appellant to file an appeal before the tribunal.

The appellant's counsel argued that the denial of credit was solely based on the shortage in the principal's books, without any physical stocktaking at the appellant's factory. They contended that the initial shortage reported by M/s. Mahindra and Mahindra was due to an accounting mistake, later clarified by them, and not due to any clandestine removal of inputs by the appellant. The appellant had already paid ?7,04,361, and there was no valid basis for denying the credit attributed to the higher value of ?2.3 crores reported as a shortage by M/s. Mahindra and Mahindra over five years.

On the contrary, the Revenue's representative reiterated the findings of the lower authorities and relied on various judgments to support their case.

After considering both sides' submissions and examining the records, the tribunal found that the denial of Cenvat credit was solely based on the shortage reported by M/s. Mahindra and Mahindra in their books, with no discrepancies found in the appellant's records. It was noted that M/s. Mahindra and Mahindra had acknowledged and corrected the erroneous shortage recording. The tribunal observed that the appellant had conducted stock verification and concluded that any actual shortage, if present, was only ?44 lakhs, for which they had reversed the credit. Given the lack of evidence of manipulation or diversion of inputs by the appellant, the tribunal modified the impugned order, allowing the Cenvat credit except for the amount of ?7,04,361. Penalties were set aside, and interest was to be charged on the reversed credit amount. Personal penalties on the employees of the appellant were deemed unsustainable. Consequently, the appeal of M/s. Musco Stampings Ltd was partly allowed, while the appeals of Shri. H.C. Shaligram and Shri. P.R. Gokhale were allowed.