Whether the Income Tax Appellate Tribunal committed error in not considering the aspect that income tax return in the form of 3-CD Tax Reports are in nature of statutory admission of assessee about short receipt of inputs and binding to assessee?

PJ/Case Laws/2011-12/1131

Prepared by
CA Rajani Thanvi
Bharat Rathore

Case:Commissioner of C.Ex. And Cusoms, Daman Vs Narendra Impex

Citation:2011(265) E.L.T. 332 (Guj.)

Issue:

1. Whether the Income Tax Appellate Tribunal committed error in not considering the aspect that income tax return in the form of 3-CD Tax Reports are in nature of statutory admission of assessee about short receipt of inputs and binding to assessee?

2. Whether the Income Tax Appellate Tribunal committed error in not appreciating that there was no detail of loss of raw material while manufacturing goods?

Brief Facts: The respondent is engaged in manufacturing Plastic Lay Flat Tubing, plastic films, plastic bags etc. During the course of audit, it was observed that the respondent had furnished Form No.3-CD under section 44 AB of the Income Tax Act, 1961 to the Income Tax Department, which revealed that the assessee has received short quantity of raw material, that is, plastic powder and granules which had not been in stock accounts of inputs. Under the provisions of rules 57A and 57AB of the erstwhile Central Excise Rules, 1944 (the Rules) and rule 3 of the CENVAT credit Rules, 2001-2002, the manufacturer or producer of final product is entitled to take credit of duty paid on any inputs or capital goods received in the factory. Since it appeared that the assessee had wrongly availed of CENVAT credit of such short quantity of raw material and proportionately wrongly availed CENVAT credit, show cause notice came to be issued to the Respondent proposing to recover CENVAT credit along with interest and penalty. The show cause notice came to be adjudicated vide Order-In-Original, wherein the adjudicating authority dropped the proceedings pursuant to the show cause notice. Being aggrieved, the revenue carried the matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) allowed the appeal of the revenue and held that the respondent-assessee had wrongly availed CENVAT credit which was not admissible to it and accordingly confirmed the demand of CENVAT credit along with the interest and also imposed penalty under rules 57I and 57AH of the Rules and rule 12 of the CENVAT Credit Rules, 2001/2002 read with section 11A(I) of the Act. Against the order of the Commissioner (Appeals), the Respondent preferred appeal before the Tribunal, The Tribunal has allowed appeal of Respondent and revenue filed appeal against Tribunal’s order.

Appellant’s Contention: The Appellant submitted that the respondent had submitted 3-CD Tax Report prepared by the Chartered Accountant wherein it was admitted that raw material had been received in short quantity. That despite opportunity having been granted by the Commissioner (Appeals), the assessee did not make out any case to show that the raw material had in fact not been received in short quantity as stated in the 3-CD Tax Report. It was submitted that Form 3-CD under section 44AB of the Income Tax Act, 1961 is a valid and statutory document and as such, the assessee was bound by what was stated therein. That in absence of any evidence being produced by the assessee to indicate that the disputed short quantity of raw material was due to process loss, the Commissioner (Appeals) had rightly held that the assessee had wrongly availed of the CENVAT credit and that the Tribunal was not justified in setting aside the order passed by the Commissioner (Appeals).

Respondent’s contention:-The Respondent submit that aperusal of the order made by the adjudicating authority indicates that the adjudicating authority has applied its mind to the fact as to whether the shortage in the quantity of inputs mentioned in the Form 3-CD Tax Audit report pertains to the quantity of inputs short received by the respondent or as to whether the said quantity represents the quantity of process loss and shortage on account of weight variations, etc. The adjudicating authority has, thereafter noted that it is an undisputed position that the CENVAT credit on process loss is admissible and cannot be denied. That the point to be considered was as to whether there was short receipt of raw material or the shortage was on account of manufacturing/process loss. That the department's case was based purely on the 3-CD Tax Audit Report and that there was no corroborative evidence to establish that the shortage was on account of short receipt of raw material. The adjudicating authority has further noted that the blow molding process of the manufacture of plastic granules requires the granules to be heated for melting, which results in certain process losses, which has been considered to be acceptable by the Board.

The Respondent submit that the Commissioner (Appeals) has allowed the appeal filed by the revenue mainly on the ground that the Form 3-CD under Section 44AB of the Income Tax Act, 1961 is a valid and statutory document and has laid the onus on the assessee to prove that the disputed short quantity of raw material was due to process loss. On going through the entire order of the Commissioner (Appeals), it is noticed that despite specific findings having been recorded by the Adjudicating Authority, the Commissioner (Appeals) has failed to deal with the same and has allowed the appeal merely on the ground that in the 3-CD Tax Report prepared by the Chartered Accountants, short quantity of raw material had been admitted.

The respondent further submit that as can be seen from the impugned order of the Tribunal, the Tribunal has, upon appreciation of the evidence on record, found that the entire case of the revenue was based upon shortage in respect of quantity of inputs mentioned in the 3-CD Income Tax Return. That the Adjudicating Authority had found that except for the above, there was no other corroborative evidence to establish that the shortage was on account of short receipt of raw material. The assessee had availed of credit of the duty as reflected in the invoices for the inputs. There was no allegation that the credit availed by it was in excess of the duty paid by the supplier of the inputs. The Tribunal further found that there was some process loss during blow moulding process and that the loss claimed by the assessee was not on the higher side. The Tribunal observed that the Commissioner (Appeals) had proceeded on assumptions and presumptions and not on the basis of any evidence showing less receipt of raw material in the assessee's factory and was of the view that the benefit of yield loss was required to be extended to the assessee. The tribunal observed that in the absence of any evidence to indicate short receipt of material, merely because there is some discrepancy between the quantity stated in the invoice and that shown in the 3-CD report; it cannot be presumed that there was in fact short receipt of raw material.

Judgment: - The Hon’ble High court heard both side and considered that in the light of the aforesaid discussion, it is not possible to state that the conclusion arrived at by the Tribunal is in any manner unreasonable, so as to warrant interference.

Decision:Revenue’s appeal dismissed.

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PJ/Case Laws/2011-12/1131

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