CESTAT rules duty demand on lost quantity impermissible, sets aside penalty

The Appellate Tribunal CESTAT, New Delhi ruled in a case involving the conversion of liquid Argon into Argon Gas and Argon mixture, where a duty demand was imposed due to a loss of 12673 M3 liquid Argon. The Tribunal held that the lost quantity should be considered as input used in manufacturing the final product, following precedents that demanding duty on lost quantity is impermissible. Consequently, the duty demand and penalty were deemed unsustainable, and the appeal was allowed, setting aside the duty demand and penalty.

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Issues: Duty demand on lost quantity of liquid Argon, availability of Modvat credit, recognition of loss during conversion, applicability of previous judgments.

The judgment by the Appellate Tribunal CESTAT, New Delhi involved a case where the appellant was engaged in converting liquid Argon into Argon Gas and Argon mixture, leading to a duty demand due to a loss of 12673 M3 liquid Argon, incurring Central Excise duty of over Rs. 91,000. The Revenue contended that the lost quantity cannot be considered as utilized in the manufacture of Argon Gas, thus denying Modvat credit on this amount.

The appellant argued that loss during conversion of the item at low temperature is inevitable, and such loss should not attract duty demand as it is recognized in manufacturing processes. Citing precedents like Hindustan Zinc Limited v. C.C.E., Jaipur and C.C.E., New Delhi v. DD Industries Ltd., the appellant emphasized that demanding duty on lost quantity is not permissible. However, the Departmental Representative referred to a Single Bench decision in Rajiv & Company v. C.C.E., Chandigarh, stating that wasted quantity is not eligible for Modvat credit.

The Tribunal acknowledged the inevitability of a certain amount of input loss in situations like the appellant's, emphasizing that the lost material should be considered as input used in manufacturing the final product. Relying on the decision in Hindustan Zinc case, the Tribunal held that the duty demand and penalty imposed were not sustainable. It distinguished the Rajiv & Company case by noting that there was no allegation of input wastage in the present scenario. Consequently, the duty demand and penalty were set aside, and the appeal was allowed.

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