Whether the CENVAT Credit deny of raw material in respect of process loss at the end of job worker or not?

PJ/Case Laws/2012-13/1529

Case: -VOLTAMP TRANSFORMERS LTD V. COMMISSIONER OF CENTRAL EXCISE, VADODARA-II

Citation:- 2013-TIOL-629-CESTAT-AHM

Brief Facts:-The appellants are engaged in manufacture of excisable goods viz. transformers and they are also availing CENVAT Credit on raw material and capital goods. During the course of audit of the records of the appellants, it was noticed that the appellants are sending Cenvatable inputs for further process on job work basis to various job workers. The appellants are sending copper goods for job work and are not receiving the same quantity of goods which were sent for job work. On being asked by the auditors, the appellants replied that there is a burning loss of 5% during job work. Hence, due to melting loss, the appellants have received lesser quantity of copper to the extent of 5% of the total quantity of goods viz. copper which was received back by them from the job worker, resulting in short payment of duty during the year 2007-2008 and 2008- 2009. Accordingly, Department issued a show cause notice to them invoking the extended period for recovering Excise duty short paid by them during the year 2007-2008 and 2008-2009, for recovering interest at appropriate rate under Section 11AB of Central Excise Act, 1944, and also proposing imposition of penalty under Section 11AC of Central Excise Act, 1944. The show cause notice was decided by the adjudicating authority vide the impugned order, wherein the adjudicating authority confirmed and ordered to recover the amount along with appropriate interest and also imposed penalty equal to the demand confirmed. Aggrieved by such an order of confirmation of demand, along with interest and imposition of penalty equal to the demand confirmed, an appeal was preferred before first appellate authority. The first appellate authority, after granting a personal hearing, concurred with the view of adjudicating authority and held that the appellant is liable to reverse the CENVAT Credit availed to the extent of the value of the goods which were short received from the job worker. Aggrieved by the said order of appellate authority, appellant filed appeal before Tribunal.

Appellant’s Contention:-The appellant submits that there is no dispute regarding the receiving back of the inputs in the form of copper strip/wire from the job worker and the work which is undertaken by the job worker is melting of copper cathode in the furnace and there was a loss. It is his submission that both the lower authorities have recorded that there is no dispute regarding the loss of copper during melting process at job worker's end. He would submit that the Tribunal in the case of Bharat Radiators Ltd - 2002 (148) ELT 1101, Vema Metal & Conductors Ltd - 2007 (213) ELT 719 (Tri-Del.), Tata Motors Ltd - 2011 (264) ELT 385 (Tri-Kolkata)have held that there cannot be demand of CENVAT Credit in respect of process loss at the end of job worker. The appellant has further draw Tribunal’s attention to the judgment of Hon'ble High Court of Gujarat in the case of CMC(India) - 2010-TIOL-71-HC-A HM-CX, DT.13.1.2010.

Respondent’s Contention:-Ld. Additional Commissioner (AR), reiterates the findings of the lower authorities.

Reasoning of Judgment:-The Tribunal heard both sides and finds that The issue involved in this case is regarding reversal of CENVAT Credit availed by the appellant on the inputs i.e. copper cathodes which were sent to job workers and inputs were received back which indicated that the job workers could clear 95% of the copper cathode which is in the form of final product like copper strips. The tribunal also finds that there is no dispute regarding job worker is engaged in melting of copper cathode and after melting such copper cathode, the process of manufacturing includes making of copper strips. Admittedly, there is a loss which is approx, 5% of the quantity of goods sent to job workers.

The Tribunal also considered that both the lower authorities have not accepted this fact and held that the provisions of Rule of 4(5)(a) of CENVAT Credit Rules envisages the receipt of entire goods back from the job workers. In my view, the said findings are not in consonance with the law as has been laid down by the Tribunal in the case of Bharat Radiators Ltd (supra), Vema Metal & Conductors Ltd (supra), Tata Motors Ltd (supra). Tribunal find that the judgment of the Tribunal in the case of Tata Motors Ltd (supra) is a Division Bench judgment and they have relied upon the decision in the case of Bharat Radiators Ltdand have recorded in Para 7 the following findings:-

“We find that Tribunal in the case of Bharat Radiators (supra) held that the credit cannot be denied in respect of the process loss at the hand of job worker. In view of the above we find as the Revenue has not denied the fact that the quantity which was found short on account of processing hence the demand is not sustainable hence set aside."

The tribunal further finds that Hon'ble High Court of Gujarat in the case of CMC (India)(supra) in para 7 have recorded the following findings:-

"7........Here, there is a concurrent finding of fact by both the authorities and there is no finding by the authorities to the effect that the loss occurred was unreasonable and both the authorities have also verified that the loss claimed by the appellant was based on the records and it would not amount to clandestine removal of goods. Even otherwise, there was no clear admission that the goods were clandestinely removed. Since this being a finding of fact, we are of the view that no substantial question of law arises out of the order of the CESTAT."

In view of the facts and circumstances of the case and also the judicial pronouncements as indicated hereinabove, the tribunal finds that the impugned order is incorrect and is liable to be set aside and Tribunal also do so.

Decision:-The appeal is allowed with consequential relief.

Comment:-The essence of this case is that the credit cannot be denied in respect of the burning loss or process loss at the hand of job worker when the department is not rebutting the fact with evidences that the quantity which was found short was not on account of manufacturing processing.

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PJ/Case Laws/2012-13/1529

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