2018 (12) TMI 237 - AT - Central Excise

Clandestine removal - excess use of inputs - entire case of the Revenue as regards the excess use of inputs and the consequent availment of Cenvat credit is based upon the comparison of input consumption figures for the two financial year 2006-07, 2007-08 - Held that - It is well settled law that the quantum of final product manufactured by an assessee cannot be arrived at on the basis of the input output ratio. The appellants have explained that 2006-07 was the first year of their manufacture and as such having started the commercial production in that year only, there was huge loss of inputs during the course of manufacture. Further it stands contended by them that they are in the manufacture of high precision products to be used for luxury cars, which require 100% sophistication and no manufacturing defects are accepted by the customers - In such a scenario to arrive at a conclusion that the appellant has used more inputs and has availed excess credit, which requires to be reversed by them cannot be upheld. In the absence of any evidence to the contrary that the appellant cleared their inputs as such after availing the Cenvat credit of duty and in fact in the absence of any allegation to that effect, there are no justifiable reasons to deny the credit to the appellant merely on the basis of the input output ratio - demand alongwith penalty set aside. CENVAT Credit - rejected products - Rule 16(1) of Cenvat Credit Rules - penalty - Held that - The appellant during the course of adjudication before the Commissioner admitted to pay the said duty and did not contest the same inasmuch as the rejected goods were not processed by them. Inasmuch as the same were accepted by the appellant as payable, the same is confirmed - inasmuch as there is no mala fide on their part and everything was being reflected in the records, the invocation of penal provision against them on the said demand would not be justified. Demand set aside with penalty - appeal disposed off.

Summary

Issues:
- Discrepancy in availing Cenvat credit on inputs
- Allegation of excess input credit availed without actual use
- Denial of Cenvat credit on rejected products
- Confirmation of demands, interest, and penalty

Discrepancy in availing Cenvat credit on inputs:
The case involved a manufacturing company availing Cenvat credit on duty paid inputs, capital goods, and input services under the Cenvat Credit Rules, 2004. An audit revealed significant variations in the ratio of inputs used and finished goods manufactured during the financial years 2006-07 and 2007-08. The Revenue alleged that excess input credit was availed without actual utilization in the final product manufacturing process. The appellant attributed the discrepancy to abnormal production loss due to processing issues in the initial year of manufacture, leading to higher input consumption. The adjudicating authority confirmed demands amounting to a substantial sum, including interest and penalty, based on the alleged excess credit availed.

Allegation of excess input credit availed without actual use:
The Revenue contended that the appellant had availed excess input credit without utilizing the inputs in the final product manufacturing process. The show cause notice proposed denial of Cenvat credit, including on rejected products, amounting to a significant sum. The adjudicating authority upheld the demands and penalties, citing the comparison of input consumption figures for the two financial years as the basis for denying the credit. However, the Tribunal found no merit in the Revenue's stand, emphasizing that the final product quantity cannot be determined solely based on input-output ratios. The Tribunal noted that the loss of inputs during manufacturing does not justify denying credit, especially when the inputs were issued for production and converted into waste or scrap during the manufacturing process. Consequently, the demand and penalty were set aside.

Denial of Cenvat credit on rejected products:
Regarding the denial of Cenvat credit on rejected products, the Tribunal observed that the appellant had admitted liability for the duty on such goods during adjudication and did not contest the same. The confirmation of the denial of credit on rejected products was upheld. However, considering the absence of malafide intent and proper record-keeping by the appellant, the Tribunal set aside the penalty imposed on the appellant in this regard.

Confirmation of demands, interest, and penalty:
The impugned orders confirmed demands, interest, and penalties against the appellant based on the alleged excess credit availed and the denial of credit on rejected products. However, the Tribunal, after a detailed analysis, set aside the demands and penalties, emphasizing the lack of evidence to support the Revenue's contentions and the legitimate utilization of inputs by the appellant. The Tribunal disposed of the appeal by setting aside the demands and penalties while upholding the denial of credit on rejected products due to the appellant's admission of liability.