Allowability of Credit on inputs - shortages in invoices vis-a-vis to weighment slips

PJ/Case Laws/2010-11/1105

Case: CC, Chenai v/s M/s Bhuwalka Steel Industries Ltd

Citation: 2010-TIOL-19-CESTAT-MAD-LB

Issue:- Shortages of inputs covered by invoices vis-à-vis weighment slips – each case to be decided on merit.

Brief Facts:- Appellant had been supplied re-rollable steel items. Certain shortage was noticed of the inputs covered by the relevant invoices vis-à-vis weighment slips and Revenue sought to allow credit on the actually received in the factory of the appellant. Since there were conflicting decisions, the matter was referred to the Larger Bench of the Tribunal.

The issue raised before the Larger Bench was that whether Cenvat credit can be denied on the ground that the weight of the inputs recorded on receipt in the premises of the manufacturer of the final products shows a shortage compared to the weight recorded in the relevant invoice.

Appellant’s Contention: - Revenue contended that Rule 3(1) of the CCR, 2004 is very specific as per which the credit of duty paid on any input or capital goods actually received in the factory of manufacturer of final products can be allowed.

It was mainly contended that as the impugned goods were re-rollable steel items and hence there was no chance of natural los during the transit in respect of such goods.

Reliance was placed on the judgments given in Bombay Dyeing & Mfg Co. Pvt Ltd v/s Commissioner of Central Excise, Mumbai [1999 (113) ELT 331 (Tribunal)] and in Mukand Ltd v/s Commissioner of Central Excise, Mumbai-III [2002 (150) ELT 168 (Tri-Mumbai)]. In this cases it was held that any quantity of inputs not physically received in factory was not eligible for Modvat credit.

Respondent’s Contention: - Assessee relied upon the judgments given in the cases of Neera Enterprises v/s Collector of Central Excise, Chandigarh [1998 (104) ELT 382 (Tribunal)], Commissioner of Central Excise & Customs, Aurangabad v/s Sipta Coated Steel Ltd [2000 (125) ELT 578 (Tribunal)]; Mardia Chemicals Ltd v/s Commissioner of Central Excise Rajkot [2003 (158) ELT 378 (Tri-Mumbai)]; Gharda Chemicals Ltd v/s Commissioner of Central Excise, Mumbai [2004 (176) ELT 296 (Tri-Mumbai)].

Reasoning of Judgment:- The Larger Bench considered all the relevant provisions as well as the judgments cited by both the sides and observed that in a case where either the entire quantity of the 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.

It was further held that however, it cannot be denied that some goods are susceptible to transit loss on account of such goods being hygroscopic nature or of volatile nature. There can also be cases of difference of weight on account of difference in the weighing scales at both ends i.e. at the point of dispatch and at the point of receipt.

The Larger Bench 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. The Larger Bench laid down the various factors depending on which it is to be decided to allow or not allow credit in any particular case. These factors are as under:

Whether the inputs/capital goods have been diverted enroute or the entire quantity with the packing intact has been received and put to the intended use at the recipient factory.
Whether the impugned goods are hygroscopic in nature or are amenable to transit loss by way of evaporation etc.
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.
Whether the difference in weight in any particular case is on account of weighment on different scales at the dispatch and receiving ends and whether the same is within the tolerance limits with reference to the Standards of weights and measures Act, 1976.
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 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. Tolerance 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 the end, the Larger Bench held that 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.

************

Comments

PJ/Case Laws/2010-11/1105

Post a Comment

Query