Admissibility of Cenvat credit on transit loss of inputs

PJ/Case Laws/2011-12/1218

Case: COMMISSIONER OF C. EX., CHENNAI v/s BHUVALIKA STEEL INDUSTRIES LTD.

Citation: 2010 (249) E.L.T. 218 (Tri. - LB)

Issue:- Difference between weight of inputs recorded in invoice and in receipt in premises of manufacturer – Whether Cenvat credit deniable as loss was normal loss.

Brief Facts: - Respondent-assessee was taking Cenvat credit in respect of inputs used in the manufacturing of final product. Thereafter the Cenvat credit for the said inputs was denied on the ground that weight of inputs recorded in receipt in the premises of the assessee was showing a shortage compared to the weight recorded in relevant invoice.

Appellant’s Contention: - Appellant contended that Rule 3(1) of the Cenvat credit Rules clearly states that the credit of duty paid on input or capital goods actually received in the factory of manufacturer of final products can be allowed. Further they referred to the case of Bombay Dyeing & Mfg. Co. Pvt. Ltd. v. Commissioner of Central Excise, Mumbai [1999 (113) E.L.T. 331 (Tribunal)] wherein it was held that duty paid as indicated in the covering document not to be taken as credit if the quantity received on weighment is found to be less than quantity indicated in document.

It was contended mainly that the impugned goods were re-rollable steel items and hence there is no chance of natural loss during transit in respect of such goods. Strictly interpreted, the provisions of Rule 3(1) of the Cenvat Credit Rules extracted above would allow credit in respect of input or capital goods actually received in the factory of manufacturer of the final product. In a case where either the entire quantity of goods or part of the goods are diverted and not received in the factory of manufacturer of the final product, there cannot be any question of allowing any credit in respect of such goods not received.

Reasoning of Judgment: -The Larger Bench of the Tribunal observed that it cannot be denied that some goods are susceptible to transit loss on account of such goods being of hygroscopic nature or of volatile nature. There can also be cases of difference in weight on account of difference in the weighing scales at both ends, i.e., at the point of despatch and at the point of receipt.

It was held that different types of shortages cannot be dealt with according to any one inflexible and fixed standard for the purpose of allowing credit under Rule 3(1) of the Cenvat Credit Rules. Decision to allow or not to allow credit in any particular case will depend on various factors such as the following:-

(i)         Whether the inputs/capital goods have been diverted en-route or the entire quantity with the packing intact has been received and put to the intended use at the recipient factory,

(ii)        Whether the impugned goods are hygroscopic in nature or are amenable to transit loss by way of evaporation etc.

(iii)       Whether the impugned goods comprise countable number of pieces or packages and whether all such packages and pieces have been received and accounted for at the receiving end.

(iv)       Whether the difference in weight in any particular case is on account of weighment on different scales at the despatch and receiving ends and whether the same is within the tolerance limits with reference to the Standards of Weights and Measures Act, 1976.

(v)        Whether the recipient assessee has claimed compensation for the shortage of goods either from the supplier or from the transporter or the insurer of the cargo.

It was held that all these factors listed above and any other relevant factor has to be kept in view in deciding any particular case as to whether the entire consignment has been received at the end of the recipient assessee without any diversion. Tolerances in respect of hygroscopic, volatile and such other cargo has also to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims. Similarly, minor variations arising due to weighment by different machines will also have to be ignored if such variations are within tolerance limits. In our view, each case has to be decided according to merit and no hard and fast rule can be laid down for dealing with different kinds of shortages.

Decision: - Reference answered accordingly.

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PJ/Case Laws/2011-12/1218

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