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PJ/Case Law/2013-14/2074

Admissibility of credit on shortages detected while measuring inputs when issued for production.

Case:- HINDALCO INDUSTRIES Vs COMMISSIONER OF C. EX., ALLAHABAD
 
Citation:-2013 (296) E.L.T. 54 (Tri. - Del.)          

Brief facts:- The appellant were manufacturers of Aluminum and its products chargeable for Central Excise duty and besides this they also manufacture Aluminium falling under Chapter 28 of the Central Excise Tariff Act, 1985. They availed Cenvat credit of Central Excise duty paid on inputs and capital goods as per the provisions of Cenvat Credit Rules, 2004. According to the appellant there was large number of inputs about 70 to 80, in respect of which Cenvat credit was availed. The appellant conducted an annual stock taking of the inputs in course of which physical stock of each input was verified. In course of such stock taking in the year 2008, variation in the quantity of certain Cenvated inputs were found. Shortages to the extent of 5.023 MT, 0.191 MT, 0.031 MT, 56.821 MT, 1.103 MT, 5.207 KL were found in respect of Aluminium Fluoride, Flomin 99E, CGM, Hard Pitch, Soft Pitch and Furnace Oil respectively. The total Cenvat credit involved on the above quantity, found short was Rs. 2,79,683/-. This information regarding stock taking was brought of the notice of the Departmental Officers in course of Audit. Accordingly the Department issued a show cause notice dated 12-9-2008 for recovery of Cenvat credit of Rs. 2,79,683/- along with interest and also for imposition of penalty, on the ground that the appellant had not used this quantity of inputs in the manufacture of the final products. The show cause notice was adjudicated by Assistant Commissioner vide order-in-original dated 28-11-2008 by which the above mentioned Cenvat credit demand was confirmed along with interest and penalty of equal amount was imposed. The Assistant Commissioner did not accept the appellant’s plea that the shortage was not real but was only due to mistakes over a period of time in weighing of the inputs at the time of issue for manufacture.
On appeal being filed against the above order of the Assistant Commissioner, as same was rejected vide order-in-appeal dated 26-2-2010 against which this appeal has been filed.
Appellant’s contentions:- The ld. counsel for the appellant, pleaded that alleged shortage of various cenvated inputs was not actual shortage but was due to mistakes over a period of time in recording the weight of the inputs issued for manufacture, as there were mistakes in weighing. The shortages in terms of percentage were about 2% which were only due to mistake in weighing scale, dip-reading & evaporation, etc., that in course of stock taking in respect of some items, there was excess also which also indicates that the variation between the actual quantity of inputs and the quantity mentioned in the records was only due to mistakes in weighing or dip-reading, etc., that demand had been confirmed by the Assistant Commissioner by following an order passed by the Commissioner (Appeals), while that order, on appeal to Tribunal, was set aside vide Final Order No. 259/2009-EX(SM), dated 1-4-2009, that Tribunal in the case of Commissioner of Customs &Central Excise, Bhopal v. Jaypee Rewa Plant reported in 2005 (182)E.L.T.397 (Tri. - Del.) had held that when the shortages was only 0.21% in case of LDO & Furnace oil, the same could be on account of evaporation and credit in respect of such shortages, was not required to be reversed, that the Tribunal in another case of Neera Enterprises v. Collector of Central Excise, Chandigarh reported in 1998 (104)E.L.T.382had held that merely 2% difference in weight between the quantity actually received and invoice quantity was not sufficient to deny Cenvat credit, as difference could be due to difference of weighing scale, that Hon’ble Rajasthan High Court in the case of Union of India v. Bhilwara Spinning Ltd. reported in 2008 (222)E.L.T.362 (Raj.)had held that in absence for allegation of clandestine removal of Cenvat credit availed input, the Cenvat credit could not be denied, that in view of the above decisions and also in view of the fact that there was no allegation of clandestine removal of the inputs, the impugned order upholding the Cenvat credit demand along with interest and imposition of penalty, was not sustainable.
 
Respondent’s contentions:- The ld. departmental representative defended the impugned order by reiterating the findings of Commissioner (Appeals) and pleaded that once the assessee had received certain quantity of inputs for use in manufacture of final products, it was assessee’s responsibility to account for the entire quantity and if he was unable to explain the shortage in respect of the inputs, the Cenvat credit in respect of the short quantity would not be available. He pleaded that in the circumstances of the case, it was the appellant who were required to satisfactorily explain the shortage of Cenvat credit availed inputs and since the explanation for shortage given by them was not satisfactory, the demand of Cenvat credit had been correctly upheld along with interest. He, therefore, pleaded that there was no infirmity in the impugned order.
 
Reasons of judgment:- The Hon’ble judge had considered the submission from both the sides and perused the records. The undisputed fact was that the appellant used a large number of inputs about 60 to 80, for manufacture for their final products and that the shortages, in question, were only in respect of 6 items mentioned above which had been detected in course of annual stock taking conducted by the appellant themselves. The Department did not refute appellant’s plea that in respect of some other items, there was excess quantity also. The point of dispute was as to whether the appellant would be eligible for Cenvat credit in respect of the quantity, which as per the stock taking conducted by them, was found short. The quantum of shortage according to the appellant, in terms of percentage was about 2% and this fact was also not refuted by the Department. According to the appellant these shortages were on account of mistakes over a period of time in determining and recording the weight of inputs being issued for manufacture. In respect of solid inputs, weighing was done by the weighing scale and in respect of furnace oil, the weighing was done by the dip-reading. He agreed with the appellant’s plea that mistake were possible in determining the weight of inputs by weighing scale or by dip-reading. The fact that the mistakes were random was also evident from the fact that in respect of a number of other items, there was excess also. Therefore Hon’ble judge held that the alleged shortages of inputs were not real shortages. He found that the same view had been taken by the Tribunal in the case of Jaypee Rewa Plant(supra) and Triveni Glass Ltd. v. Commissioner of Central Excise, Allahabad reported in 2008 (221)E.L.T.306.Similar issues had been raised in appellant’s own case decided by the Tribunal vide Final Order No. 259/2009-EX(SM) dated 3-3-2009 [2009 (241)E.L.T.263 (T)] by which the Tribunal has set aside the Cenvat credit demand.
 
Decision:- Impugned order set aside and appeal allowed.

Comment:- The analogy drawn from the case is that if shortages were on account of mistakes over a period of time in determining and recording the weight of inputs being issued for manufacture, the cenvat credit would not be deniable to the assessee as such shortages of inputs are not real shortages. Accordingly, the assessee shall be eligible for Cenvat credit.

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