Whether process losses during filling of gases in a cylinder require credit reversal?

PJ/CASE LAW/2016-17/3135

Case:-M/s BOC INDIA LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-I

Citation:- 2016-TIOL-1285-CESTAT-MUM

Brief Facts:-The appellant, M/s BOC India Ltd., were procuring various gases like, oxygen, nitrogen and organ and bottling them into smaller packs. During the process of re-bottling, there were following losses:-

(a) At the time of debulking/decanting/discharge of the bulk parcel into the storage tanks the assessee;

(b) During the storage period (while the inputs were in the storage tanks), before being drawn for filling in the unit cylinders for manufacture of their finished products; and

(c) At the time of filling of the cylinders i.e. during the process of manufacture.

Revenue demanded reversal of credit taken on the gases in respect of these losses on the ground that the said inputs were either not received or were not accounted for purposely or used in the manufacture of exempted goods under Rule 57(i) of the Central Excise Rules, 1944. Penalty was also imposed under Rule 173Q of the Central Excise Rules, 1944.

Appellant’s Contention:-Learned Counsel for the appellant argued that in their own case, Tribunal has allowed them relief in case of gases that escaped into the atmosphere during the filling of cylinder vide Order No. 1934-1945/2003/WZB/C-III dated 17.12.2003 reported in 2004 (164) ELT 357. He further informed that the said order has been upheld by the Hon'ble Gujarat High Court vide 2008 (223) ELT 33 (Guj.). He further informed that in their own case, Tribunal vide order reported in 2004 (166) ELT 254 (Tri-Del) has held that gases lost during manufacturing process are to be considered used in or in relation to manufacturing process and credit has been allowed. He further informed that the said decision of the tribunal has been upheld by Hon'ble High Court of Delhi vide 2007 (213) ELT 647 (Del). He further relied on the decision of Hon'ble High Court of Andhra Pradesh in the case of Andhra Paper Mills Ltd. -2011 (269) ELT 79 (AP), wherein credit of entire amount of chlorine gas supplied by the supplier has been allowed even though while returning the cylinder, a part of chlorine gas was returned, holding it to be a process loss in or in relation to manufacturing process.

Respondent’s Contention:-Learned AR relies on the decision of the Hon'ble High Court of Patna in case of I.O. L. Ltd. - 1997 (95) ELT 182 (Pat.)

Reasoning Of Judgement:-They have gone through the rival submissions and find that the decision cited by the appellant in their own case clearly held that the process losses during the filling of a cylinder are use of input in or in relation to manufacturing process. They further find that the decision of Hon'ble High Court of Andhra Pradesh in case of Andhra Paper Mills (supra) goes a step further and allowed the credit in respect of the actual quantity filled even though the part of quantity was returned in this case, later.

In view of the above, they find that the issue is squarely covered. The appeal is accordingly allowed.

Decision:- Appeal allowed.

Comment:-The gist of the case is that the process losses during the filling of cylinder are use of input in or in relation to manufacturing process and credit cannot be denied on it. And,therefore the demand of revenue regarding reversal of CENVAT credit on account of these losses of inputs is not sustainable. This decision was squarely covered by the case of Andhra Paper Mills Ltd.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2016-17/3135

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