2018 (2) TMI 1661 - AT - Central Excise

CENVAT credit - inputs - material usage variance not used in manufacture of goods - Held that - there is no provision under the CENVAT Credit Rules, 2004 for denial of availment of credit merely on the ground that the assessee has admittedly deployed inputs in excess of the ideal for achieving desired output level The demand for recovery of the credit held to be ineligible by the lower authorities does not have the sanction of law - the tax element here is manufacture and the inefficiency attributed to excessive usage of materials is perforce reflected in an enhanced assessable value on which appropriate duty liability has been discharged - appeal allowed - decided in favor of appellant.

Summary

Issues: Denial of CENVAT credit for inputs not used in manufacturing. Interpretation of Circular No. 645/36/2002-CX. Eligibility of CENVAT credit for inputs procured without duty. Excess usage of inputs and its impact on CENVAT credit.

Issue 1: Denial of CENVAT credit for inputs not used in manufacturing:
The case involved a manufacturer of 'manganese dioxide' facing denial of CENVAT credit amounting to ?7,06,000 for inputs valued at ?44,1,350.18, which were adjusted as material usage variance and considered not used in the manufacturing process. The adjudicating authority held that only credit related to inputs actually used in manufacturing could be claimed, and any non-usage reported as variance should be excluded from CENVAT credit under the CENVAT Credit Rules 2004.

Issue 2: Interpretation of Circular No. 645/36/2002-CX:
The Circular clarified the admissibility of MODVAT/CENVAT credit on inputs/capital goods written off as obsolete or unfit for use. It differentiated between fully written off inputs requiring credit repayment and partially written off inputs still capable of use not necessitating credit repayment. The appellant argued that certain raw materials used were non-excisable or sourced duty-free from SSI units, hence not all of the ?7.06 lacs credit was attributable to dutiable inputs. However, the appellant failed to provide documentary evidence to support this claim, leading to the upholding of the adjudicating authority's decision to reverse credit on inputs not accounted for in final product manufacturing.

Issue 3: Eligibility of CENVAT credit for inputs procured without duty:
The appellant contended that the variance in material usage represented additional production costs due to inefficiency, with no proof of inputs being used for purposes other than manufacturing. The Authorized Representative highlighted that inputs not levied with duty were ineligible for CENVAT credit, emphasizing the importance of adhering to the CENVAT Credit Rules 2004.

Issue 4: Excess usage of inputs and its impact on CENVAT credit:
The demand for credit recovery was based on the excess usage of inputs beyond production norms, leading to an enhanced assessable value and discharge of appropriate duty liability. However, the Tribunal noted that the denial of credit solely due to excess input usage lacked legal basis under the CENVAT Credit Rules 2004, as there was no provision for credit denial based on input inefficiency. The decision to deny credit was deemed inconsistent with the law, resulting in the setting aside of the impugned order and allowing the appeal.

In conclusion, the Tribunal set aside the impugned order, emphasizing the importance of adhering to the CENVAT Credit Rules 2004 and the legal requirements for claiming CENVAT credit on inputs used in manufacturing processes.