Cenvat Credit - admissibility of - when variation found in material received

PJ/Case Laws/2011-12/1525

Case: Commissioner of Central Excise, Nagpur Vs Ispat Industries

Citation: 2012 (275) E.L.T. 235 (Tri.-Chennai)

Issue: - Cenvat credit – when difference between quantity of material received and corresponding invoice due to use of different weighbridges at supplier’s end and at respondent’s factory - variation only 0.02% to 0.04% - held, within tolerance limits prescribed under Standard of Weights and Standard of Measures Act, 1976 and can be ignored.

Brief Facts: - The assessee is engaged in manufacturing of Cold-rolled steel sheets and their main raw material is Hot Rolled Coils (HR Coils). On Scrutiny of records by the officers of department, it has noticed that the assessee had received lesser quantity of HR Coils than that shown in invoices and transportation challans/lorry receipts but CENVAT credit has been taken of the duty paid on the entire quantity of HR Coils shown in the said documents.

After the investigation, show cause has issued to the respondent for recovery of alleged inadmissible CENVAT credit availed. The SCN also demanded interest and proposed penalties under the relevant rules read with relevant sections of Central Excise Act. The SCN invoked the extended period of limitation by alleging that the noticee had suppressed short receipts of HR Coils with intend to avail inadmissible credit fraudulently for evading payment of duty on final product.

Appellant’s Contention: - Appellant submitted that the Cenvat Credit could be allowed only on that quantity of input which was actually received in factory and used in, or in relation to, the manufacture of final product. In this connection he placed reliance on the P & H High Court’s Judgment in C.E.E. No. 13/2004 [CCE Ludhiyana Vs. Krishna Wire Products (P) Ltd. and others]

It is also contended by the Appellant that the burden was on the Respondent to show that the input was utilised in manufacture of final product. Referring to the statement of Respondent, Appellant submit that short-receipt of HR Coils was admitted by the party and therefore Cenvat Credit was not admissible to them in respect of the quantity not received and not used in the manufacture of final product

Respondent’s Contention: - Respondent submitted that they used to verify the correctness of the weight of HR coils by weighment on their weighbridge before making entry in the ‘HR Coils Receipt Register”. The difference in weight of the material between their register and the consignor’s invoice was due to the variation in the weights recorded by two weighbridges, one in their own factory and the other at the originating station (Consignor’s end).

The variation was within the tolerance limits certified by the Assistant Contoller of Weights & Measures (Department of Legal Metrology) and also by the independent Chartered Engineer. Actually there was no shortage of raw material received in their factory and the material supplied by the consignor were entirely used in the manufacturing of final product and therefore Cenvat Credit was not deniable. The Respondent has also relied upon decisions in case of CCE, Aurangabad Vs. Sipta Coated Steel Ltd. [2000 (125) E.L.T. 578] and Neha Enterprises Vs. CCE [1998 (104) E.L.T. 382]

Respondent submitted that the appeal was only liable to set-aside in view of the Tribunal’s Larger Bench Decision in CCE, Chennai Vs. Bhuwalika Steel Industries Ltd wherein it was held that minor variation due to weighment by different machines required to be ignored if such variations were within tolerance limit. He also relied on Union of India v. Bhillwara Spinning Ltd., wherein the High Court upheld an order of the Tribunal by hoding that, unless the invoice covering the input were found to be wrong or the input received under the such invoices was found to have been diverted for some other use, the invoices whould be proof of the quantity of input received in the factory and used in the manufacture of the final product as also the proof of payment of duty on the input, and that no curtailment of credit of such duty was permissible.

Reasoning of Judgment: - The lorry loads of HR Coils which were received at the respondent’s factory were weighted on their weighbridge and the net weights of the material were recorded in the “HR Coil Receipt Register” maintained by the respondent. Often these weight were found to be less than the quantities mentioned in the corresponding invoices. In some cases, the weight entered in the said register was higher than that indicated in the invoice. In both cases, Cenvat credit was availed of the duty paid on the material as indicated in the invoices. These facts are noted by the lower authority and also not in dispute. The only dispute is with regard to the credit availed on the differential quantity of input where the weight of material entered in the material receipt register is less than t hat mentioned in the corresponding invoice. According to the respondent, the variation in weight is on account of two different weighbridges having been used for weighting of material, on at supplier’s end and the other in their factory. These weighbridges are two different capacities viz. 60 MTs and 40 MTs and their tolerance limits (as certified by the competent authority in the Legal Metrology Department) are +- 60 KGs. and +- 40 Kgs respectively which work out to 0.075% to 0.1 %. The actual shortage of material, as founded on comparison of the invoices with the “HR Coil Receipt Register”, is 0.02% to 0.04% only, which is within the above tolerance limit. These facts have not been disputed by the appellant. The contention of the appellant is that the rules do not permit any tolerance limits of weighbridges to be taken into account in the determination of admissibility of CENVAT credit.

The variation was due to weighment by different weighbridges are, undisputedly, only 0.02% to 0.04% and within tolerance limit prescribed under the Standard of Weights & Measures Act and the Standard of Weights & Measures Rules, 1987 and hence can be ignored. As it is not the case of the appellant that the so-called differential quantity of HR Coil was lost in transit or diverted or that it was not duty paid. The entire quantity of the material covered by the invoices was received in the respondent’s factory and used in the manufacture of final product therefore duty paid on such quantity would be admissible to them.

Decision: - Appeal Dismissed.

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PJ/Case Laws/2011-12/1525

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