2017 (2) TMI 1279 - AT - Central Excise

Tribunal rules in favor of appellant in duty credit dispute

The Tribunal allowed the appeal, setting aside the demand for reversal of credit of duty on molasses used in the manufacture of Rectified Spirit. It held ... CENVAT credit - molasses used in manufacture of Rectified Spirit - Held that: - the method of proportionate reversal adopted by the appellants, cannot be faulted with and FIFO method cannot be followed as per the wish of the Revenue. Further, rectified spirit, though not excisable, Rule 6(2) is not applicable - demand set aside. Diversion of clearance of inputs as such - Molasses were transferred to another company without the permission of the Department - Held that: - Rule 8 of CCR provides that the Deputy Commissioner and Assistant Commissioner having jurisdiction over the factory of the manufacture of the final products may, in exceptional circumstances, having regard to the nature of the goods and shortage of storage space at the premises of such manufacture, by an order, permit such manufacturer to store the input in respect of which Cenvat Credit has been taken, outside such factory, subject to such limitations and conditions as he may specify, provided that where such input is not used in the manner specified in these Rules for any reason whatsoever, the manufacturer of the final products shall pay an amount equal to the credit availed in respect of such input - Admittedly in the facts and circumstances, there is no case made out by Revenue that the appellant have not manufactured finished products from such inputs which were stored outside. Further, it is an admitted fact that the inputs stored outside were subsequently received back in the factory for which proper records are maintained as recorded in the Panchnama. Appeal allowed - decided in favor of appellant. Issues Involved:1. Reversal of credit of duty on molasses used in the manufacture of Rectified Spirit.2. Demand due to transfer of molasses to another company without Department permission.3. Penalty under Section 11 AC read with Rule 15 of CCR.4. Confiscation of excess stock and demand of duty on goods found short.5. Method of reversal of credit (FIFO vs. proportionate basis).Detailed Analysis:1. Reversal of Credit of Duty on Molasses Used in Manufacture of Rectified Spirit:The appellant, a manufacturer of various products including Rectified Spirit, faced a demand for reversal of credit amounting to Rs. 25,48,951/-. The Revenue contended that the appellant should have reversed the credit on a FIFO basis, while the appellant argued for a proportionate basis due to the simultaneous use of molasses from common storage tanks. The Tribunal found that the method of proportionate reversal adopted by the appellant was appropriate and that FIFO could not be imposed by the Revenue's preference. Additionally, it was held that Rule 6(2) of CCR, 2004, was not applicable as Rectified Spirit is not excisable.2. Demand Due to Transfer of Molasses Without Department Permission:The appellant had transferred 25,964.50 Qtls. of molasses to another unit without reversing the credit or obtaining permission. The Revenue demanded Rs. 20,29,755/- for this transfer. The Tribunal noted that while the appellant did not seek prior permission, there was no evidence of diversion or misuse of molasses. The Tribunal found that the inputs were used in the manufacture of final products, and proper records were maintained. Thus, the demand was set aside.3. Penalty Under Section 11 AC Read with Rule 15 of CCR:Penalties were imposed on the appellant for various infractions, including the non-reversal of credit and the transfer of molasses. The Tribunal found that the penalties were imposed mechanically without considering the nominal nature of the discrepancies. The penalties were set aside as the appellant had maintained proper records and there was no substantial evidence of intent to evade duty.4. Confiscation of Excess Stock and Demand of Duty on Goods Found Short:During an inspection, discrepancies in stock were found, leading to the confiscation of excess stock and a demand for duty on goods found short. The Tribunal observed that the variations were nominal and attributed to factors like temperature variance. The confiscation and demand were deemed mechanical and without substantial basis. The Tribunal set aside the order of confiscation and the demand for duty on nominal variations.5. Method of Reversal of Credit (FIFO vs. Proportionate Basis):The Tribunal addressed the dispute over the method of reversing credit on molasses. The Revenue insisted on a FIFO method, while the appellant used a proportionate basis due to the practicalities of their manufacturing process. The Tribunal upheld the appellant's method, stating that the proportionate reversal was valid and practical under the circumstances.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order. It held that the proportionate method of reversal of credit was appropriate, the penalties were imposed mechanically, and the nominal discrepancies did not warrant confiscation or duty demand. The appellant was entitled to consequential benefits as per the rules.