2022 (1) TMI 759 - AT - Central Excise

CENVAT Credit - Chemicals sent to the job workers for carrying out further process - inputs which were not received within 180 days - rule 4 (5)(a) Central Excise Rules,2004 - suppression of facts or not - time limitation - HELD THAT - Admittedly the appellant has sent the inputs chemicals for job work in the water base. The entire processed goods have been returned within 180 days. The remaining quantity was subsequently returned back though after 180 days but the same was in the form of wastage. In fact the job worker is not required to return the wastage material which is predominantly the contaminated water therefore, it cannot be said that the appellant has not received back the processed goods within 180 days. In this fact the appellant has received back the processed goods within 180 days therefore, the demand on the ground that the appellant has not received the goods within 180 days is not sustainable. Moreover, even if it is assumed that the subsequently received material after 180 days is part of the processed goods even then only due to delay in receipt Cenvat credit cannot be denied as the appellant was entitled for Cenvat credit as and when the input / processed goods received after 180 days therefore on both the count the cenvat credit could not have been denied or demanded by the Revenue. There is a short receipt of 2% material - since the appellant has sent their chemicals in the water base during the process it is obvious that a certain quantity of the contaminated water shall be wasted therefore, the same is not capable of being returned by the job worker. Irrespective of the fact whether the same is liable to be returned or not there is no dispute that the non receipt of material is wastage and nothing else. It is settled that any wastage arising during the course of manufacture cenvat credit attributed to said wastage cannot be denied. Time limitation - HELD THAT - Since the appellant has followed the procedure as prescribed in Rule 4(5)(a) for movement of goods for job work. No suppression of fact can be attributed to the appellant. Therefore, the demand is not sustainable on the time limitation also. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Delayed receipt of inputs from job workers.
2. Short receipt of inputs from job workers.
3. Denial of Cenvat credit, interest, and penalty.

Delayed Receipt of Inputs from Job Workers:
The case involved M/s. Lanxess India Private Limited sending chemicals for distillation to job workers, including a water base, for recovering pure elements. The Central Excise Department raised objections regarding inputs not being returned within 180 days. The appellant debited Cenvat Credit as a precaution, but the audit report highlighted a failure to reverse a specific amount. The demand was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals). The appellant argued that inputs were stored and transported in a water base, leading to a lower concentration of chemicals when sent for distillation. They contended that the material returned after 180 days was waste, not subject to credit reversal. The Tribunal found that the appellant received the processed goods within 180 days, making the demand unsustainable.

Short Receipt of Inputs from Job Workers:
Another issue was the short receipt of inputs after 180 days, leading to a demand for Cenvat credit. The appellant explained that due to the nature of the process involving chemicals stored in a water base, a certain amount of material loss was inevitable. They argued that such losses were not subject to credit reversal under Rule 4(5)(a) of the Cenvat Credit Rules, 2004. The Tribunal agreed, stating that wastage arising during manufacturing could not be a basis for denying Cenvat credit. The demand for short receipt of inputs was deemed unsustainable.

Denial of Cenvat Credit, Interest, and Penalty:
The appellant further contended that even if the demand for Cenvat credit was upheld, they had reversed the credit before utilization, rendering the demand for interest and penalty unsustainable. They cited various judgments to support their argument. The Tribunal agreed, stating that when credit was reversed before utilization, it equated to not availing credit at all. The appellant's compliance with Rule 4(5)(a) procedures and lack of malafide intentions led the Tribunal to set aside the demand, ruling in favor of the appellant.

In conclusion, the Tribunal found in favor of M/s. Lanxess India Private Limited, setting aside the demand for Cenvat credit, interest, and penalty. The judgment highlighted the importance of considering the nature of the manufacturing process, the inevitability of process-related losses, and the compliance with relevant rules in determining the eligibility for Cenvat credit and the reversal of the same.