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TMI Blog2022 (12) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... , which they had reversed along with the interest due on the same. They are only challenging the penalty imposed on them equivalent to the credit denied. It is found that in respect of the said demand undisputedly appellant have paid the entire amount of credit along with interest on being pointed out by the audit much before the issuance of show cause notice. In such a situation, the as per the provisions of Section 11 A (2) reproduced below, no notice could have been issued to the appellant and penalty imposed - the submission of the appellant, challenging the penalty imposed under needs to be accepted, and appeal in respect of this demand allowed to the extent of setting aside the penalty imposed. CENVAT Credit - demand made on the insulation material without physically receiving the same in their factory premises - HELD THAT:- Undisputedly in the present case the goods were cleared from the premises of the job worker to unrelated buyer after determination of value under Rule 10A. Thus the clearances undertaken were in fact clearances made by the principal manufacturer and all consequences including admissibility of CENVAT Credit on the input raw materials supplied by them to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire issue of shortage in the present case, cropped up when the appellants migrated from the earlier system of accounting to SAP system. In process the appellants discovered certain accounting errors in books of account like BOM error, posting entry, material issued to production but not captured in the books, process loss not captured in the books, etc. Accordingly, some of the stocks in the books were reflected at higher side and some of the stocks were reflected at lower side - The department proceeded on the assumption that the shortage in books stock due to accounting errors is an actual shortage of stock without conducting any physical stocktaking to show that the shortages reflected in the books were actually the physical shortages too. Extended period of limitation - HELD THAT:- In the present case the entire demand has been made by the revenue by relying on the book of accounts taking note of the adjustment of stocks of inputs/ work in process/ finished goods as shortages, without producing any evidence of clandestine clearance of the same Further no stock taking has been independently conducted by the revenue to determine any shortages under panchanama - The entire cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their factory, under Rule 14 of the Cenvat Credit Rules, 2004, read with section 11A(1) of the Central Excise Act, 1944, I order appropriation of an amount of Rs. 21,75,023/- already paid by them against the confirmed demand. iv. I order recovery of interest on the amount confirmed as above, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944, and appropriate an amount of Rs. 4,04,542/- already paid by them as interest. v. I confirm the demand of Central Excise Duty amounting to Rs. 23,37,519/- on the inventory of damaged/rejected/non saleable goods written off in their books of account, under section 11A(1) of the Central Excise Act, 1944. 1 appropriate an amount of Rs. 23,37,519/- already paid by them against the confirmed demand. vi. I order recovery of interest on the above Central Excise duty/cenvat credit amount, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944 and appropriate an amount of Rs. 2,95.457/- already paid by them as interest. vii. I confirm the demand of Central Excise duty on finished goods found short and written off and cenvat credit on raw materials/Inputs/WIP found short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit on insulation material shown to have been received from their sub-contractor M/s. Singh Singh, Jamshedpur. The investigations however, revealed that appellant had never received the insulation material at their Pune plant and the same was directly sent to their Jamshedpur unit. Thus they had wrongly availed CENVAT credit amounting to Rs. 19.97 Lakhs without actually receiving material, so the same was required to be reversed. It was also found that Appellant had availed double Cenvat credit on some of the invoices. Therefore, the Cenvat credit wrongly availed twice on the same invoices amounting to Rs. 1.78 Lakhs was required to be reversed by them. When this was pointed out to them, they vide their letter dated 24.02.2009 informed that they have deposited an amount of Rs. 25.79 lakh in their PLA account, which includes an amount of Rs. 21.75 lakhs (i.e., Rs. 19.97 lakh + Rs. 1.78 lakh) towards reversal of irregular CENVAT credit and interest amounting to Rs. 4.04. 2.5 In the year 2007-08, they had migrated to the new SAP system. While migrating it was observed that there were certain inadvertent accounting errors like BOM error, Posting Entry, material issued to production bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envat credit wrongly availed on the goods written off, under Section 11AB of CEA, 1944 read with Rule 14 of CCR, 2004 liable for penalty under Section 11AC of the Act and Rule 15(2) of CCR, 2004 for the acts of omission and commissions. 2.7 A show cause notice dated 21.02.2011 was issued to the appellant asking them to show cause as to why:- i. The CENVAT credit amounting to Rs. 21,98,785/- (Rs. twenty one lakhs ninety eight thousands seven hundred and eighty five only) availed on the capital goods without having received the same in their factory, as shown in Annexure A to this show cause notice, should not be demanded and recovered in terms of Rule 14 of CCR, 2004 read with Section 11A(1) of CEA, 1944 and why the amount of Rs. 21,98,785/- already paid during the investigation as mentioned in Para 4 above, should not be appropriated against the said demand. ii. Interest on the above CENVAT credit amount should not be recovered under Rule 14 of CCR, 2004 read with Section 11AB of the CEA, 1944 and why the amount of Rs. 2,51,653/- paid by them during investigations as mentioned in Para 4 above, should not be appropriated against the same. iii. The Cenvat credit amounting to Rs. 21,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty should not be imposed upon them under Rule 15(2) of CCR, 2004. 2.6 The show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved appellants have filed this appeal. 3.1 We have heard Shri Rajesh Ostwal, Ms Payal Nahar Advocates Ms Hanisha Jatania, Chartered Accountant for the Appellant and Shri Amrendra Jha, Deputy Commissioner Authorized for the revenue. 3.2 Arguing for the appellant learned counsel submits The fact that the appellants have paid the demand along with interest and 25% penalty would not mean that the Appellants cannot proceed with the appeal. The issue is squarely decided by this tribunal in the case Apex Communications [2016 (42) STR 153 (T)] and Safex Electromech (P) Ltd. [2019 (27) GSTL 535 (T)]. The shortage in inventory is notional/ books shortage and not actual shortage. Demand merely on the basis of theoretical/ notional shortage without any evidence of actual shortage of goods, is not maintainable. Cenvat credit on insulation material cannot be denied to the appellants since the duty paid raw materials have been received and undisputedly used by the sub-contractor on behalf of the appellants only and cleared fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd revenue has not considered the excess stock mentioned in the statutory auditor's report. Rule 3(5B) is not applicable to finished goods and Work in process goods When WIP is not actually removed from the factory, there is no question of 'removal as such' under Rule 3(5). Therefore, credit reversal is not required under Rule 3(5). Even after considering CBEC Circular No. 907/27/2009-CX, dated 7.12.2009, several judicial pronouncements decided that reversal of credit is not required on WIP goods under Rule 3(5B). Nectar Lifesciences Ltd [2013 (293) ELT 247 (T)] Parknonwoven Pvt. Ltd. [2015 (10) TMI 423] SMG International [2016 (2) TMI 1037] Extended period of limitation is not invokable. Maruti Suzuki India Ltd. [2015 (8) TMI 493 SC] Tata Motors Ltd. Vs. CCE [2019 (7) TMI 1797] Hindalco Industries Ltd. [2003 (61) ELT 346] Kirloskar Oil Engines Ltd. [2004 (178) ELT 998] Martin Harris Laboratories Ltd. [2005 (185) ELT 421] Jindal Vijaynagar Steel Ltd. [2005 (192) ELT 415] Shahnaz Ayurvedics [2004 (173) ELT 337 (All.)] Affirmed by the Hon'ble Supreme Court 2004 (174) ELT A34 (S.C.). Devans Modern Breweries Ltd. [2006 (202) ELT 744 (SC)] Penalty is not imposable and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s imperative that the related statutory provisions of the CCR,04, CER, 02, be perused and understood. In the said context, I find that the following provisions are relevant to this case ., 45. Accordingly, the issues raised in the show cause notice and the reply submitted by the assessee are being dealt with one by one as below: a. Cenvat credit availed on Capital Goods procured for setting up Paint Shop in their factory without receiving the Capital goods in their factory premises I find that the cenvat credit amounting to Rs. 21,91,785/- has been reversed by the assessee along with interest of Rs. 2,51,653/-. The assessee has not disputed the factum of non-receipt of the impugned capital goods in their factory premises but they have only put forth reasons for not having brought the said capital goods in to their factory premises. But, the fact remains that the assessee availed cenvat credit of the capital goods which were not brought into the factory premises and put to use therein, clearly in contravention of Rule 3(1) of CCR, 04, which stipulates that a manufacturer can avail credit of duty paid on any input or capital goods received in the factory of manufacture of final produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from their customers M/s. Tata Motors Ltd., Jamshedpur, the excise duty stands paid on the final price as per Rule 10A of Valuation Rules, 2000; that M/s Singh Sons have not availed cenvat credit on such insulated material directly received by them; that it is not the case of the department that there is a double availment of cenvat credit on the said insulated material nor is it the issue that the value of said material has not been included in the value of the final product, on which excise duty stands paid. Issue involved here is not whether the cost of insulation material stands included in infact the issue the cost of finished goods cleared by their job worker on payment of duty or otherwise. Here the question is wrong availment cenvat credit without receipt of material in the factory in contravention of Rule 3(1) of CCR, 04. The assessee has not negated this fact but they seem to argue their case on a different platform, which is not the fact in issue. Thus their reliance upon the Apex Court's decision in the case of International Auto, is of no avail since the facts in that case are different than in the present case. Here, it would not be out of context to refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the plea of the assessee to grant relief in this regard. C. Availment of cenvat credit twice on the same invoice- It was also noticed that the assessee had wrongly taken credit of Rs. 1.78 lakhs twice on the basis of same invoice, which was required to be reversed by them. They have not contested the issue and paid the sum of Rs. 1,78,063/- alongwith interest of Rs. 35,692/- Therefore, I uphold the demand raised in the notice along with interest and penalty. d. Reversal of cenvat credit of inputs used in the manufacturing process upto the WIP stage and later on these WIP goods categorized as non-saleable. The total value of such rejects written off as shortages is to the extent of Rs. 2.63 Crores in their books of account. The assessee have deposited C.Ex. duty of Rs. 23,37,519/- and interest amounting to 2,95,457/- on goods valued at Rs. 1,41,83,975/-. Regarding the balance amount of Rs. 1,22,48,559/- pertaining to scrapping of WIP rejection they claimed to have paid C.Ex. duty at the time of disposal of the scrap between June 08 Oct. 08. Here I find that, in principle, the assessee have agreed to their duty liability on this count. They have attributed these shortages to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demand reversal of credit. Here I find that the assessee has mis-interpreted the aforesaid Rule, which states that- 'If the value of any, (i) input, or (ii) capital goods before being put to use, on which CENVAT credit has been taken is written off fully or where any provision to write off fully has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods. On plain reading of this Rule alongwith the CBEC No. 907/27/2009-CX dtd. 7.12.09, referred to above. Circular clear that the cenvat credit on write off shortages of inputs used in rejects/ it is unambiguously WIP is reversible by the assessee and I am not inclined to accept the assessee s contention on this count and accordingly uphold the demand raised in the show cause notice. e. Shortages written off in the books of account amounting to Rs. 15.23 Crores: From the show cause notice I find that shortages of various material valued at Rs. 15.23 Crores were written off by the assessee at the end of 31.3.08 in their books of account. This appeared final since no adjustment in the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts were shown as stock but the goods used directly by the shop were not accounted for in the system. The stock of general items like stationery, hand gloves, cleaning materials were also considered as shortages Unit of measurement in many cases were wrongly considered in the SAP system, which resulted in fictitious. The assessee have contested this issue on various aspects and I deal with the same one by one. i) Issue relating to Bill of Material Error shortages totally amounting to Rs. 2,59,63,608/-- Proposed demand of duty on input contained in WIP-valued at Rs. 1,39.91.151/- The assessee have contended that they have been able account for the book shortages due to consumption not having being posted or incorrect consumption posted in SAP, as against the actual consumption worked out based on net goods produced vis- -vis materials required for producing the final product; that the said write-off is only for the difference in stock and not on account of physical shortages of stock. The assessee cited two examples of Engine hood assembly 'A' 'B' and tried to demonstrate that had the short quantity been correctly booked in their respective consumption accounts at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... berrations in their SAP system. inclined to conclude that they are short of any concrete evidence to disprove the write off figures in their own books of account unearthed by their own statutory auditors. The Bill of Material error is one of the main points being agitated by the assessee i.e. the goods which were not in the BOM were directly being issued for consumption and therefore not recorded in the SAP system. Here I would like to point out that certain inputs, as per assessees own explanation, viz. Furnace Oil, appeared in the BOM for the first three quarters of 2007-08 and hence its consumption was recorded in the SAP. However, during the last quarter of the year this item was not included in the BOM and therefore its consumption was not recorded in the SAP was resultantly booked as shortage. This shows that their preparation of BOM itself is not standardized and deficient and non recording of consumption in the SAP system due to BOM error is nothing but an explanation shrouded with afterthought. The assessee have argued non-applicability of provisions of Rule 3(5B) of CCR, 04, to the present issue on the grounds that show cause notice demands reversal of such cenvat credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o grant them any relief on this count. Further I find it surprising that some part of the total material gets booked in ml and the rest is not. ii. Demand on packing material valued at Rs. 1,38,71,456/- and the duty calculated at Rs. 22,86,016/- The assessee have contended that although the receipts of these materials have been recorded in the system, the material is not a part of BOM; that the purchase register reveals the entire purchases made in this regard; that no packing material in the same form has been removed from the factory. Since the assessee have not produced any documentary proof to show that the material has in fact been consumed in the course of manufacture, I am unable to rely upon the assessees purchase documents and come to a logical conclusion that since there are purchases of the packing material and since there is no clandestine removal, so the material must have been fully consumed during the course of manufacture. Therefore, I uphold the demand on this count. iii. Demand on Furnace Oil used for maintenance valued at Rs. 57,30,125/- on which the duty is calculated at Rs. 9,44,325/- The assessee have argued that these items were directly used for production a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Ltd. Vs. CCE, Bangalore - 2007(207) ELT 562 (Tri,-Bang.] upheld by the Karnataka High Court as reported in 2010 (255) ELT 36 (Kar.) - Having gone through the facts of the cited case I find that in that the book shortages were held to be excessive than the physical shortages with reference to other documents viz. statutory records of production, RG-1 maintained manually wherein through IDN (Internal Delivery Note) they accounted the production and the clearances were accounted through Delivery Challans. However, in the instant case no other parallel records evidencing movement of materials for production etc. has been submitted by the assessee and therefore 1 am inclined to defer from the cited case law as not applicable to the facts of this case. Further, I would like to rely upon the Mumbai High Court decision in the case of CCE, Aurangabad Vs. Greaves Cotton Ltd.- 2008(225) ELT 198 (Bom) - wherein para '5 it is observed that- 'Para 5 - Rule 7(4) of CCR, 02, (now Rule 9(5) of CCR, 04) reads thus - The manufacturer of final products shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved that the assessee have taken/ utilised Cenvat credit wrongly in respect of raw material / capital goods/finished, which were either. not received in the factory of the assessee, or not accounted for in their books of account, or written off in their books of accounts Accordingly, I hold the assessee liable to pay interest calculated on the amount equivalent to the wrongly taken credit, from the date of taking such It is also a settled credit till the date of reversal of the same by the assessee. principle that liability to pay interest is sine qua non to payment of duty when duty liability is confirmed. In this case duty is demanded under Section 11A of the Central Excise Act, 1944 which is equal to wrong availment of cenvat credit or reversal of credit. 48. I further find that the show cause notice seeks to invoke the provisions under the proviso to Section IIA(1) of CEA, 1944, for demanding duty for the extended period on the grounds of suppression of facts with intent to evade duty. Here I observe that the assessee had not intimated the department at any point of time that they have taken/utilised Cenvat credit wrongly in respect of raw material / capital goods/finished w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case, had the department not detected the wrong availment/utilisation of the cenvat credit the assessee would have enriched themselves to that extent. The assessee should have been more vigilant about their tax obligations. Strict compliance of the provisions laid down under tax statutes is expected of the Assessees who are working under self-assessment scheme. Consequentially, the tax statutes attract principles of strict liability for any delinquency, irrespective of the existence or otherwise of mens rea, because of the civil obligation cast upon the assessee. The Hon'ble Supreme Court in the case of UOI Vs Dharmendra Textile Processors 2008-TIOL-192-SC-LB, while holding that mens rea is not an essential element for imposing penalty for breach of civil obligations, has also observed that It is delinquency of the defaulter itself which establishes his blameworthy conduct........ without any further proof of the existence of mens rea. 51. Thus once it is established that the assessee has committed breach of the mandatory provisions the same would constitute a breach of civil obligation cast upon him and irrespective of existence or non-existence of mens rea, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g error which has led the department to proceed with the said case and as ascertaining the errors occurred in posting / not posting in SAP system during the transition period has led to the said difference in stock in books. Therefore, we have deposited the entire amount of duty, interest and also 25% amount of duty as penalty Under Protest , reserving our right to contest the case in Tribunal and also to claim the refund of duties, interest and 25 % penalty, after the outcome of the case. As we have deposited the entire amount of duty demanded in above referred Order in Original and also the interest and 25% of duty amount as penalty (under protest) within 30 days from the receipt of Order in Original, we are entitled for wavier of 75 % penalty amount in terms of Section 11 AC (1) (c) of CEA, 1944, which is reproduced below. 4.4 Tribunal has in case of A. Apex Communications [2016 (42) STR 153 (T)] held as follows: 5. Even though, I took the help of both the A.RS present in the Court and my own knowledge of law, I could not find any legal provision which provides that once an assessee pays the entire demand with interest and penalty to the extent of 25% of the Service tax demanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exceeding a maximum of twenty-five per cent of the duly, and inform the Central Excise Officer of such payment in writing. (7) The Central Excise Officer, on receipt of information under sub-section (6) shall - i. not serve any notice in respect of the amount so paid and all proceedings in respect of the said duty shall be deemed to be concluded where it is found by the Central Excise Officer that the amount of duty, interest and penalty as provided under sub-section (6) has been fully paid; ii. proceed for recovery of such amount if found to be short-paid in the manner specified under sub-section (1) and the period of one year shall be computed from the date of receipt of such information. xxxxxxxxxxxxxx (emphasis added) 5. On plain reading of the above provision it is not only the payment of amount, interest and 25% penalty but the appellant needs to give an intimation to the department accepting their liability which the appellant had not given, in such case if at all the Revenue is of the view that the amount is legally payable, it was incumbent on the Revenue to issue a SCN which they failed to do so. Therefore, in these circumstances, the appellant is rightly entitled for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Surface Coating Pvt Ltd 1301500224 24.12.2007 3,07,46,396 B.3 An amount of Rs 1.75 cr. was paid as an advance to INTECH. The said paint booth was ordered with an objective to supply the painted parts to OEM customers. The appellants had planned that the paint line will be installed in a separate building, adjacent to the existing plant. To facilitate this, the appellants finalized the deal with the landowner for constructing a Paint Shop and the land owner started the civil work. However, as the title of the land was not clear, the construction of Paint Line building was kept on hold. The entire issue got stuck up due to the fact that owner is yet to get the clear title of said land in order to enable the appellants to start the construction. B.4 Since the appellants had paid the advance, the Paint Line supplier started manufacturing of painting equipment and as per the agreed schedule, partial delivery of the painting equipment was completed three years back. This material was kept in the temporary godown as there was no place to install this equipment in the existing plant, while the appellants continued exploring alternate options to install the paint line. The said paint line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed the Cenvat credit along with the interest as prudent tax payer. Therefore, penalty is not imposable on the appellants. 4.8 From the above submissions made in the appeal memo and during the course of argument on appeal, it is evident that appellant do not dispute that these capital goods were not received by them and not installed/ put to use. They do not dispute the denial of the credit, which they had reversed along with the interest due on the same. They are only challenging the penalty imposed on them equivalent to the credit denied. We find that in respect of the said demand undisputedly appellant have paid the entire amount of credit along with interest on being pointed out by the audit much before the issuance of show cause notice. In such a situation, the as per the provisions of Section 11 A (2) reproduced below, no notice could have been issued to the appellant and penalty imposed. (2) The person who has paid the duty under clause (b) of sub-section (1), shall inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under clause (a) of that sub-section in respect of the duty so paid or any penalty l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants though the invoice mentions consignee name as appellants. Out of Rs 21,75,023/-, Rs 1.78 lakhs pertain to invoices on which the credit has been claimed twice by the appellants. [refer para 6 page 109 of appeal memo] Cenvat credit cannot be denied to the appellants since the duty paid raw materials have been received and used by the sub-contractor on behalf of the appellants. Further, it is undisputed that the sub-contractor has cleared the final product on payment of excise duty by adopting valuation under Rule 10A of the Valuation Rules, 2000-. Further, it is never the contention of revenue that the sub-contractor has taken cenvat credit on the very same insulation material. Therefore, the appellants have correctly taken cenvat credit on insulation material. 4.11 Rule 10A of the Central Excise Valuation Rules, 2000 reads as follows: 10A. Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then,- (i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of the inputs supplied by them directly to the job worker for the clearance of the finished goods as provided for in terms of Rule 10A. 4.12 On the issue of admissibility of CENVAT Credit on the inputs sent directly to the premises of job worker, the issue is no longer res-integra. CENVAT Credit has been held to be admissible in respect of the goods sent directly to the job worker in the following cases: Bilt Graphic Paper Products Ltd. [2017 (4) TMI 1121-CESTAT], 4. On the other hand, Shri H.M. Dixit, ld. Asstt. Commissioner (AR) appearing on behalf of the revenue submits that the cenvat credit could be allowed only when the input is received by the assessee and used in the manufacture of final product. In the present case, admittedly, the input in question were not received by the appellants and not used in the manufacture of final product by them. Therefore, the credit is not admissible to the appellants. He placed reliance on the judgment of Geno Pharmaceuticals Ltd. 2015 (37) STR 136. 5. On careful consideration made by both sides, I find that the fact is not under dispute that the input in respect of which the job worker raised the sale invoice in the name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice] shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of - (i) the duty of excise .................. (ii) to (xi) ....................... paid on - (i) any input or capital goods received in the factory of manufacture of final product ................ (ii) ................... Including the said duty, or taxes, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86-Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547(E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004. From the above provisions, it can be seen that the CENVAT Credit is allowed not only on the input received in the factory of the manufacturer of the final product but also the input used in the manufacture of intermediate product by a job-worker availing the benefit of exemption under Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Modvat credit attribute inputs to the used in the processing of the material. The appellants took the transfer/credit into their account. Under the impugned orders, it has been held that credit was not due. The present appeal challenges those orders. 2. The contention of the appellant is that since the job workers had used duty paid inputs for the processing carried out by it, the appellants were rightly eligible for the transfer of those credits. It is being pointed out that issue had come up between the parties and this Tribunal held in favour of the appellant vide Final order No. 1345/05-SM. Branch dated 20-7-2005 in Appeal No. E/1174/2004-NB/SM . It is the contention of the learned Counsel that the issue raised in the present appeal is identical to the one decided in that order. The appellant has also relied upon the decision of the Tribunal in the case of Commissioner of Central Excise, Pondicherry v. Vijayashree Instaprint Machinery, reported in 2005 (190) E.L.T. 27 (Tri.-Chennai) in support of his contention. 3. We have perused the record and heard learned Senior Departmental Representative also. In identical case, this Tribunal has already held in favour of the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of this demand. The allegation made without any reference to relevant documents and entries in the book of accounts cannot be upheld. Appeal filed by the appellant in respect of this demand is allowed. 4.15 In respect of the demand made on the gross shortages and on the Damaged/ rejected/ Non saleable stock, appellant has during the course of arguments submitted as follows: Issue No Demand Involved Departments Contention Brief submissions of the Appellant Gross Shortage 2,09,90,046 RM/WIP has been found short and not used by the appellants but written off in the books of accounts. Hence, credit taken should be reversed under Rule 3(5B). FG has been found short and removed without issuance of invoice and hence, liable to excise duty. (i) Rule 3(5B) applies where inputs are available in the factory but it's value is written off in books. When the department alleged that there is shortage of inputs or WIP, it would mean that goods are not available in factory hence, Rule 3(5B) will not apply. (ii) Rule 3(5B) is not applicable on WIP and Finished goods. (iii) Audit report in addition to shortage also reports excess goods. This itself shows that discrepancy is theoretical/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier system of accounting to SAP system. In process the appellants discovered certain accounting errors in books of account like BOM error, posting entry, material issued to production but not captured in the books, process loss not captured in the books, etc. Accordingly, some of the stocks in the books were reflected at higher side and some of the stocks were reflected at lower side. To rectify these accounting errors, the appellants passed JV entries as a corrective measure so that the books of account can reflect the true and fair view of stock of inputs/ WIP and finished goods. The department proceeded on the assumption that the shortage in books stock due to accounting errors is an actual shortage of stock without conducting any physical stocktaking to show that the shortages reflected in the books were actually the physical shortages too. 4.17 Appellants also placed on record the Chartered Engineers' Report dated 11.6.2012, confirmed by the Chartered Accountants report dated 13.6.2012, which shows the reconciliation between the theoretical consumption and actual consumption of raw material required for manufacture of finished goods. From these reports it is evident that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished goods include Rs. 3,431 ( 000), Rs 4,740 ( 000) and Rs 41 ( 000) respectively being stock at a location of the Company where physical verification could not be carried out as at the year end by the management and accordingly the quantities as per inventory records after making adjustment of damaged/ rejected/ non-saleable items determined a stated in the Note 7 of Schedule 18, have been considered for valuation. The impact, if any, of discrepancies that may have been identified on such verification on the loss for the year cannot be ascertained. (ii) (c) of the Annexure Referred to in paragraph 3 of the Auditors Report of even date to the members of Automotive Composite Systems (International) Limited on the accounts for the year ended 31st March 2008 has observed as follows: During the year the company has implemented SAP system. In our opinion the inventory records are not properly maintained consequentially material discrepancies aggregating to Rs. 128,760 ( 000) net shortages (Gross Excesses Rs 23,538 ( 000) Gross Shortages Rs 152,298 ( 000) were noticed between physical stock and inventory records which have been properly dealt with in the books of accounts. The above ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed manually wherein through IDN (Internal Delivery Note) they accounted production and through delivery challans, clearances were accounted. It is not the case of the Revenue that there is a discrepancy between the entries in the statutory record of production, mainly RG-1 and the physical stock available on a particular day. It is admitted that a large number of components are being manufactured by the appellants and they have a special system of accounting called the SAP system. When the appellants find discrepancies in the physical stock and what is shown in the SAP system, we have to infer that errors have kept in the accounting of stock in the SAP system. In other words, SAP system accounting has not reflected the actual picture in view of the error found out by the appellants themselves at the end of each year. They also have their system of correction under system code Nos. 701 702 for adjustment of excesses and shortages. The above facts cannot lead us to a conclusion that shortages of finished goods have arisen on account of their removal without payment of duty and without accounting. The DGCEI officers themselves had not conducted any physical verification of stock of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fluctuation in the weight of individual varieties of the forgings. There were in all 31 varieties in stock. In this connection I must mention that unless the department is in a position to clearly demonstrate the fact of shortage through actual physical weighment of the entire stock, the allegation of shortage of stock and consequent illicit removal of finished goods cannot be sustained. The method of stock taking adopted by the authorities at best can lead to a suspicion of shortage but cannot be a substitute for the proof of shortage. D. Affirming the decision in case of Maruti Udyog Ltd. [2004 (173) ELT 382 (T)] Hon ble Punjab and Haryana High Court has at [2010 (262) ELT 180 (P H)] held:- 15. When the facts of the present appeals are examined in the light of categorical findings recorded by the Tribunal, it becomes evident that the view taken by the Tribunal does not suffer from any illegality. The arguments raised by the Revenue are thus liable to be rejected. The Tribunal has recorded categoric findings that in the establishment of the dealer, full reconciliation of transactions concerning use of inputs was not possible. The shortages and excesses had been found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of raw materials and finished goods. However, he confirmed the reversal of credit in respect of raw material found short after netting of excess with shortage among various varieties. Same method has been adopted for finished goods also. We find that the shortages and excesses found during physical stock verification which remained unreconciled are within the tolerance limit keeping in view the thousands of types of raw material and finished goods involved in the accounting by the assessee. Such view has been taken by this Tribunal in the cases of Maruti Udyog Ltd. v. CCE, Delhi-III reported in 2004 (173) E.L.T. 382 (Tri. - Del.) and in Widia India Ltd. v. CCE, Bangalore reported in 2007 (207) E.L.T. 562 (Tri. - Bang.) later affirmed by the Hon ble High Court of Karnataka in 2010 (255) E.L.T. 36 (Kar.). Another important point to be noted here is that while the whole discrepancy in physical stock has come to light only as per the stock taking conducted by the assessee, there is no allegation or evidence to the effect that the shortages/excesses are not attributable to accounting errors or complexities but are due to unaccounted clearances finished goods and consumption of raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envat credit of Rs. 5,34,746/-. If this statement is taken into account, we are afraid, it was not open for the Commissioner (Appeals) to observe in paragraph No. 6 of his judgment that it was a case of alleged shortage of some items of inputs and excess of some other items of inputs, as revealed by the Cost Audit Report of the appellant for the period 2002-2003. On going through the order of the Commissioner (Appeals), Cost Audit Report does not seem to be before the Authority, but the Authority seems to have relied upon a letter dated 17-10-2005 produced by the assessee at the time personal hearing which was in fact a list submitted by the assessee of the items found excess and those found short. We do not think that except reproduction of Rule 7(4) of the Cenvat Credit Rules, 2002, any other material is required to record a finding in favour of the Department that it is the burden of proof of the assessee to justify the Cenvat credit availed. It is necessary to refer the orders of the Joint Commissioner as also the Commissioner (Appeals) because they have applied Rule 7(4) in correct perspective. In view of failure on the part of the assessee to account for utilization of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking into consideration that it is a huge plant with huge turnover and in spite of huge and complex accounting system, there are bound to be some problems and some errors. With due respect, the Tribunal did not consider the other side of the coin. The Department does not function as a supervisor to ensure that every input is used or not used in the manufacture of final product is properly recorded in the accounts and the Department wholly relies upon the Books of Accounts maintained by the assessee for the purpose of finding out as to whether correct Cenvat credit is claimed and whether correct duty is paid by reversing the Cenvat credit to which they were not entitled. Ultimately, the amount recovered has to go to the Public Exchequer. Without accusing the Department in the present case, we cannot avoid considering a probability that the Books of Accounts being constantly under the control of the assessee, it is easier for assessee to play mischief, if assessee so desires. The Appeal filed by the revenue against the decision of tribunal in case of Maruti Udyog, referred above has been dismissed by the Hon ble Supreme Court [2015 (319) ELT 549 (SC)], holding as follows: We find f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the manufacturer shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods : Provided that if the said input or capital goods is subsequently used in the manufacture of final products, the manufacturer shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules. 4.21 In case of General Motors Pvt Ltd [Final Order No A/86151-86153/2022 dated 01.11.2022] we have observed a follows: There is complete legislative history to explain the insertion of the rule 3 (5B). Prior to the insertion of the said rule, CBEC has is 1995 issued Circular No 101/12/96-CS dated 22.2.1995 as a direction to plug the revenue leakage in situations where assessee was writing off the material in the books of accounts, but not reversing the MODVAT credit availed on those input materials. Subsequently, the CBEC issued circular no. 615/36/2002-X dated 16.7 2002 clarifying that in situation wherein inputs had been written off, the instruction mentioned in circular dated 22.2.1995 shall apply i.e. Credit availed must be paid back. Rule 3(5B) was introduced w.e.f. 11.5.2007. The inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l product manufactured on the very day that it becomes available. This decision in an unambiguous manner provides that once the credit has been taken by the appellant then the same is available to him unless the manufacturer himself chooses not to use the raw material in its excisable product. Thus it is the option of the manufacturer to declare that inputs on which he has taken the credit have become unusable or have been lost and are not available for the purpose of manufacture of finished goods which are cleared on the payment of duty. The philosophy of this observation of Hon ble Apex Court, is what has been formally stated in Rule 3 (5B) of the CENVAT Credit Rules, 2004. 4.22 Interpreting the said rule Tribunal has is case of Tata Motors Ltd. [2021 (11) TMI 830 CESTAT Mumbai] held as follows: 6. We find that in the facts and circumstances of the present case the shortages and excesses if any found are theoretical due to huge quantity of inputs handling. It is not a case of the Department that the appellant have ever removed any Cenvat inputs without payment of duty from their factory. Therefore, even though there is any shortage or excess, the input was available within the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibid has no application in the present case. Nor Rule 11 is applicable as the said rule will come into play only when the Cenvat Credit has been taken or utilised wrongly whereas in the present matter the Cenvat credit was rightly taken on eligible inputs upon their receipt. Learned Authorised Representative on the other hand reiterated the findings recorded in the impugned order and prayed for dismissal of Appeal. According to learned Authorised Representative the appellants are liable to pay an amount equivalent to Cenvat Credit taken on inputs allegedly written off in terms of Rule 3(5B) ibid alongwith interest and penalty, as it categorically states that an amount equivalent to the Cenvat credit taken on input written off is payable by the assessee. He denied the contention of learned counsel that those parts which were not available during physical stock verification at its specified storage rack were subsequently found in another storage rack. 4. Rule 3(5B) ibid specifically provides that If the value of any input or capital goods before being put to use, on which CENVAT credit has been taken is written of fully or where any provision to write off fully has been made in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of the said goods. We are also not oblivious of the fact that on a similar set of facts in appellants own case this Tribunal in the matter of M/s. Tata Motors Ltd. Vs. CCE, Pune-1; reported in 2016-TIOL-1027-CESTAT-MUM while relying upon the law laid down by the Hon ble Supreme Court in the matter of Maruti Suzuki India Ltd.; 2015(319) ELT 549 (SC) decided the issue in favour of the Appellants. Similarly in another matter of Appellants i.e. Appeal No. E/172/2009 in the matter of M/s. Tata Motors Ltd. Vs. CCE ST, Jamshedpur, a coordinate Bench of the Tribunal vide Order dated 11.1.2019 decided the issue in favour of the appellants therein and held that the demand is not sustainable and there is no evidence on record that the inputs on which the Credit was taken, were not received in the factory or removed as such from the factory. 6. While following the decisions as cited above and in view of the facts of this case and also in view of the discussions made hereinabove, we are inclined to set aside the impugned order and accordingly the appeal filed by the appellants is allowed with consequential relief as per law, if any. (ii) Tata Motors Ltd. Vs. Commissioner of Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, appeal is allowed. 4.23 We also note that an explanation as follows was inserted in Rule 3 (5B) vide Notification No 03/2013-CE 9NT) dated 01.03.2013, providing for recovery mechanism in terms of the said rule. Explanation . - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken and utilized. The period involved in the present case is prior to the date of insertion of the said explanation. In case of Steel Authority of India Ltd. [2020 (3) TMI 147 CESTAT Chennai] following has been held relying on the judicial precedence: 7. It is for the department to prove the allegations raised in the SCN. Even from the SCN or the documents placed before me, there is no evidence to show that the appellants have written off the full value of capital goods. There is only partial writing off to the extent of 50%, 70%, 90%. On such score, the amendment brought forth w.e.f. 1.3.2011 to reverse the credit on partial written off value would only apply. However, the provision for recovery of the credit availed wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited provisions, it has to be held that, prior to 1-3-2011, a manufacturer of final product who availed Cenvat credit on inputs was not required to reverse any part of that credit on the ground of a part of the value of the inputs being written off the books of account. Only cases of writing off the full value of the inputs on which Cenvat credit had been availed called for reversal of the credit. The present one is not such a case. It is also pertinent to note that the Department has no case that the amendment dated 1-3-2011 has retrospective effect. Similar view as taken in M/s. Kirloskar Ferrous Industries Ltd.(supra) and relevant portion of the order is reproduced as under : 5. After considering the submission of both the parties and perusal of the material on record, I find that from the show cause notice itself, it is clear that there was no provision for full write off of inputs and capital goods. The audit party raised the objection that the appellant has made a provision for write off of the inputs and capital goods and demanded the reversal of the same. In reply to the audit note, the appellant had written letters dated 24.4.2011; 25.11.2011 and 8.7.2013 whereby the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y nature of accounting, there is bound to be difference. Unless it is shown that the appellants had cleared the goods without payment of duty in a clandestine manner, or in other words, unless there is evidence to show that there is clandestine clearance, this type of demand of duty is not sustainable. 6. On a very careful consideration of the issue, we find that the case-laws relied on by the Revenue are the cases decided by a Single Member Bench, whereas the Division Bench's decisions are in favour of the department. In any case, the longer period is clearly not invocable and since different basis are adopted for estimate the production, consumption, clearance, stock taking etc. the discrepancy between the stock taking figures and the production figures which are accounted should not immediately lead us to the conclusion that the difference has been removed clandestinely. All the case-laws decided earlier by this Bench are clearly applicable. The longer period also is not invocable. Therefore, the duty demand cannot be sustained. The penalty imposed is also not justified. Hence, we allow the appeal with consequential relief. C. Dalmia Cements (Bharat) Ltd. [2008 (224) ELT 484 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y carried out on the WIP goods cannot be considered as amounting to manufacture, in that case, the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable. After taking note of this clarification in Nectar Life sciences Ltd [2013 (293) ELT 247 (T)] following has been held: 6. The above pleas of the appellant were not accepted by the Commissioner who by referring to the provisions of Rule 3(5B) and 3(5C) as also to the Board's Circular No. 907/27/2009-CX., dated 7-12-2009, confirmed the demand of duty as proposed in the notice along with confirmation of interest and imposition of penalty of identical amount under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. 13. We further note that the legal issue as regards reversal of credit is well settled. If the inputs, on which the credit stand availed were issued for further manufacture of the goods and goods are destroyed during the course of manufacture of the goods, no reversal of Cenvat credit is called for. For the above proposition, reference can be made to the Tribunal's decision in the case of Commissioner of Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 3(5B) are invoked, consequently, the appellant are not entitled to avail Cenvat credit. 6. Heard the parties considered the submissions. 7. In this case the appellant has filed the claim refund on duty paid by them on account of reversal of Cenvat credit availed on inputs which were used in work in progress/semi-finished goods. Admittedly, the inputs on which Cenvat credit was availed by the appellant were used in manufacture of final goods. Therefore, the Cenvat credit cannot be denied to the appellant, moreover, the work in progress lost in fire. Therefore, appellant is not entitled for claim of remission of duty but the appellant cannot be asked to reverse Cenvat credit. It is a fact on record that the appellant has not written off the value of semi-finished goods/work in progress. In that circumstance, Rule 3(5B) of the CCR, 2004 is not applicable in this case. 4.27 The entire case against the appellants have been made out on the basis of their own book of accounts. There is no evidence adduced to show that the appellants had intention to evade payment of duty by undertaking the review of their account books vis a vis physical inventories at time of shifting their accounts on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2005 (192) ELT 415] 6. Moreover, the fact of giving interest free advance to M/s. JVSL is mentioned in the Balance Sheet of the appellant company. In view of the findings of the adjudicating authority and the ratio of CEGAT s decision in Hindalco Industries Ltd. v. CCE, Allahabad - 2003 (161) E.L.T. 346 (Tri.-Del.), wherein it is held that demand raised on the basis of information appearing in Balance Sheet is not sustainable invoking the extended period as Balance Sheet of companies is a publicly available document, the longer period cannot be invoked in this case. On this ground alone, the entire demand is liable to be set aside. 4.28 In view of the above decisions we are not in position to hold that extended period of limitation as provided under Section 11A will not be available for making this demand as the entire case in respect of denial of CENVAT Credit in respect of raw materials contained in the finished goods and raw materials contained in the finished goods and raw materials , the value of which was adjusted in the books of accounts as well as demand of excise duty in respect of finished goods, the value of which was adjusted in the books of accounts, is made out agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. 23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides. 4.28 In view of the discussions as above, we summarize our findings as follows: i. For the demand made in respect of the Capital Goods, for setting up the paint shop, admittedly appellants have not received any capital goods against which they have taken the credit. They have reversed the credit taken along with the interest, during the course of investigation. They have in their appeal not-challenged the finding in respect of the non-receipt of the capital goods, but have only challenged the penalty imposed in respect of the amount already reversed on this account, much prior to issuance of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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