Denial of cenvat credit on short receipt of coal in the factory due to unavoidable loss

PJ/CASE LAW/2016-17/3199

Case-SARDA ENERGY AND MINERALS LTD. Versus COMMISSIONER OF C. EX., RAIPUR

Citation-2016 (337) E.L.T. 143 (Tri. - Del.)

Brief Facts-The present appeal is against order dated 30-7-2014 of Commissioner (Appeals-I), Raipur. The appellants are engaged in the manufacture of Ferro Alloys liable to Central Excise duty. They buy coal from Coal Mines which are required to be washed to make them suitable for use in their manufacturing process. The coal purchased by the appellant are cleared from the mines on payment of duty and send directly to washery - job worker for washing the coal to make it fit for further use. During such washing an irrecoverable weight loss of about 3% occurs. The appellants are buying coal and are getting invoice with duty paid details on a monthly basis. Since the documents covering the transport in individual trucks was not duty paid documents, the appellants requested the Department to permit them to take Cenvat credit on the monthly invoices in terms of Rule 9(2) of the Cenvat Credit Rules, 2004. The Assistant Commissioner granted such permission vide his letter dated 12-9-2012. While granting such permission, the Assistant Commissioner intimated that the credit shall be restricted to the actual quantity of coal received physically by the appellant in their premises. The appellants vide their letter dated 14-9-2012 requested for credit of full duty paid on coal and shortage, if any, is attributable to washing done by the job worker. Later, proceedings were initiated against the appellant by issue of notice dated 29-4-2013. The case was adjudicated by the Original Authority vide order dated 30-4-2014. He disallowed the credit of Rs. 1,92,277/- and imposed equal penalty on the appellant. On appeal, the Commissioner (Appeals) upheld the said order. Aggrieved, the appellant is before the Tribunal.

Appelants Contention-The learned Council for the appellant submitted that full quantity of coal they purchased from the coal company is rightly entitled for credit. Washing of such coal is necessarily an integral part of manufacture of their final product and the loss of about 3% in weight is attributable to washing. In other words the invisible loss which happens during washing cannot be held against the appellant for denying the credit. The learned counsel submitted that during the impugned period out of total coal of 1,26,334 M.T., the Cenvat credit on 3,572 M.T. was sought to be denied on the ground that the said coal has not been put into use as required under Cenvat Credit Rules. This, the Counsel submitted, is legally unsustainable. The show cause notice itself is substantially time barred, except for two months. There is no suppression on their part as is evident from the communications sent by them disclosing all details, while seeking permission to take credit on monthly invoices. The learned counsel also relied on the Tribunal’s decision in UIC Industries Ltd. v.CCE, Calcutta - III reported in 2002 (149)E.L.T.745 (Tri. - Kolkata) and Board Circular No. 267/136/87-CX.8, dated 15-1-1988 and instructions contained in para 3.7 of Central Excise Manual.

Respondents Contention-The learned AR reiterated the findings of the lower Authorities and submitted that the appellants did not follow the procedure stipulated for movement of goods to the job worker in terms of Notification No. 214/86-C.E., dated 25-3-1986.

Reasoning Of Judgement-The tribunal have heard both the sides and examined appeal records. The point for decision is whether or not the appellants are right in taking credit on the full quantity of coal bought by them on payment of duty from coal mines. The Department denied the credit attributable to the invisible losses that occur due to washing of the coal to make it fit for use. There is no allegation in any proceedings that certain quantity of inputs have been diverted or contained in some other product that arose during the processing of the coal. The admitted fact is that the 3% loss is solely attributable to washing. Considering the above factual position, they find no ground to restrict the Cenvat credit when the appellants bought and paid for the quantities of coal cleared from the coal mines and therefore find the impugned order is unsustainable and accordingly allow the appeal.

Decision-Appeal allowed

Comment-The gist of the case is that on the short receipt of coal in factory up to 3% of weight due to washing loss by job worker, which was necessary for making it fit for use, credit cannot be denied. And since the assessee has paid duty on full quantity received from mines, there is no allegation that such quantity diverted or contained in some other products during processing thereof, hence credit not deniable in accordance with Rule 3 and Rule 9 of Cenvat Credit Rules, 2004.

Prepared By-Neelam Jain

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PJ/CASE LAW/2016-17/3199

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