2022 (12) TMI 1499 - AT - Central Excise

CESTAT allows CENVAT credit on inputs sent to job workers under Rule 10A, rejects penalty where credit already reversed

M/s. TACO Composites Ltd. (Erstwhile M/s. Automotive Composites Systems (International) Ltd.), Versus Commissioner of Cen. Excise & ST, Pune-III

CESTAT Mumbai allowed the appeal partially regarding CENVAT credit disputes. The tribunal set aside penalties for capital goods credit denial where the ... Levy of penalty equivalent to the credit denied - CENVAT Credit on Capital Goods, for setting up the paint shop - inputs not received by the appellant in their factory premises but sent directly to the premises of the job worker, from where the goods were cleared to the customers as per Rule 10A of the Valuation Rules, 2000 - availment of the credit twice - clandestine removal - shortages of finished goods - invoking Rule 3 (5B) of the CENVAT Credit Rules, 2004, in respect of alleged shortages of the inputs and work in process material - extended period of limitation - penalties. Levy of penalty equivalent to the credit denied - CENVAT Credit on Capital Goods, for setting up the paint shop - HELD THAT:- The appellant do not dispute that these capital goods were not received by them and not installed/ put to use. They do not dispute the denial of the credit, which they had reversed along with the interest due on the same. They are only challenging the penalty imposed on them equivalent to the credit denied. It is found that in respect of the said demand undisputedly appellant have paid the entire amount of credit along with interest on being pointed out by the audit much before the issuance of show cause notice. In such a situation, the as per the provisions of Section 11 A (2) reproduced below, no notice could have been issued to the appellant and penalty imposed - the submission of the appellant, challenging the penalty imposed under needs to be accepted, and appeal in respect of this demand allowed to the extent of setting aside the penalty imposed. CENVAT Credit - demand made on the insulation material without physically receiving the same in their factory premises - HELD THAT:- Undisputedly in the present case the goods were cleared from the premises of the job worker to unrelated buyer after determination of value under Rule 10A. Thus the clearances undertaken were in fact clearances made by the principal manufacturer and all consequences including admissibility of CENVAT Credit on the input raw materials supplied by them to the job worker is on the principal manufacturer. The appellants in fact being the principal manufacturer cannot be faulted when they had availed the credit in respect of the inputs supplied by them directly to the job worker for the clearance of the finished goods as provided for in terms of Rule 10A. On the issue of admissibility of CENVAT Credit on the inputs sent directly to the premises of job worker, the issue is no longer res-integra. CENVAT Credit has been held to be admissible in respect of the goods sent directly to the job worker - reliance can be placed in M/S BILT GRAPHIC PAPER PRODUCTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NAGPUR [2018 (5) TMI 390 - CESTAT MUMBAI] and FLEX INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NOIDA [2006 (2) TMI 439 - CESTAT, NEW DELHI]. The principles stated in the above decision were incorporated in the CENVAT Credit Rules, 2004 vide the amendments made by Notification No 6/2015.In view of the decisions, the demand made for recovery of the CENVAT Credit availed by the appellant on the insulation material sent directly to the job worker without receiving the same in their premises cannot be sustained, the appeal needs to be allowed in respect of this demand. Denial of the CENVAT credits - it is alleged that appellant has availed the CENVAT Credit twice on the same invoice, appellants have not stated anything in their appeal memo - HELD THAT:- From the show cause notice and the impugned order, there are no support for the allegation made. Even the detail of invoice against which the credit has been alleged to have been taken twice is not stated. In absence of any details in respect of the invoice number/ date and the entries in the CENVAT account by which the credit has been taken twice, it cannot be held in favour of this demand. The allegation made without any reference to relevant documents and entries in the book of accounts cannot be upheld. Appeal filed by the appellant in respect of this demand is allowed. Gross shortages and on the Damaged/ rejected/ Non saleable stock - HELD THAT:- It is observed that these demands have been made in respect to the accounting shortages, which were in respect Raw material, Work in Process material and Finished Goods. These shortages are not the physical shortages determined by the actual physical stock taking undertaken by the department. As per the appellants the entire issue of shortage in the present case, cropped up when the appellants migrated from the earlier system of accounting to SAP system. In process the appellants discovered certain accounting errors in books of account like BOM error, posting entry, material issued to production but not captured in the books, process loss not captured in the books, etc. Accordingly, some of the stocks in the books were reflected at higher side and some of the stocks were reflected at lower side - The department proceeded on the assumption that the shortage in books stock due to accounting errors is an actual shortage of stock without conducting any physical stocktaking to show that the shortages reflected in the books were actually the physical shortages too. Extended period of limitation - HELD THAT:- In the present case the entire demand has been made by the revenue by relying on the book of accounts taking note of the adjustment of stocks of inputs/ work in process/ finished goods as shortages, without producing any evidence of clandestine clearance of the same Further no stock taking has been independently conducted by the revenue to determine any shortages under panchanama - The entire case against the appellants have been made out on the basis of their own book of accounts. There is no evidence adduced to show that the appellants had intention to evade payment of duty by undertaking the review of their account books vis a vis physical inventories at time of shifting their accounts on SAP. Once the book of accounts disclosed the facts completely then proceeding against the appellant by invoking the extended period of limitation cannot be justified - It cannot be held that extended period of limitation as provided under Section 11A will not be available for making this demand as the entire case in respect of denial of CENVAT Credit in respect of raw materials contained in the finished goods and raw materials contained in the finished goods and raw materials, the value of which was adjusted in the books of accounts as well as demand of excise duty in respect of finished goods, the value of which was adjusted in the books of accounts, is made out against the appellants on the basis of the own documents of the appellant, which were in the public domain. Appeal allowed. Issues Involved:1. Eligibility for CENVAT credit on capital goods not received in the factory.2. Eligibility for CENVAT credit on insulation material not received in the factory.3. Reversal of CENVAT credit on inputs used in Work in Progress (WIP) categorized as non-saleable.4. Reversal of CENVAT credit on goods found short during physical inventory and written off.5. Recovery of Central Excise duty on finished goods found short and written off.6. Imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944.Detailed Analysis:1. Eligibility for CENVAT Credit on Capital Goods Not Received in the Factory:The appellant availed CENVAT credit on capital goods procured for setting up a paint shop, which were never received or installed in their factory. The credit was reversed along with interest before the issuance of the show cause notice. The tribunal held that since the appellant reversed the credit and paid interest before the issuance of the show cause notice, the imposition of penalty was not justified. The appeal was allowed to the extent of setting aside the penalty imposed.2. Eligibility for CENVAT Credit on Insulation Material Not Received in the Factory:The appellant availed CENVAT credit on insulation material that was directly sent to their job worker's premises. The tribunal held that under Rule 10A of the Valuation Rules, 2000, the principal manufacturer (appellant) is entitled to CENVAT credit even if the inputs are sent directly to the job worker. The appeal was allowed in favor of the appellant, and the demand for recovery of CENVAT credit was set aside.3. Reversal of CENVAT Credit on Inputs Used in Work in Progress (WIP) Categorized as Non-Saleable:The tribunal noted that the entire issue of shortage was due to accounting errors during the migration to the SAP system. There was no physical stocktaking by the department to corroborate the alleged shortages. The tribunal held that Rule 3(5B) of the CENVAT Credit Rules, 2004, applies only to goods available in the factory and not to theoretical shortages. The demand was set aside, and the appeal was allowed.4. Reversal of CENVAT Credit on Goods Found Short During Physical Inventory and Written Off:The tribunal found that the shortages were theoretical and not based on physical stocktaking. There was no evidence of clandestine removal of goods. The tribunal held that Rule 3(5B) of the CENVAT Credit Rules, 2004, does not apply to theoretical shortages. The demand was set aside, and the appeal was allowed.5. Recovery of Central Excise Duty on Finished Goods Found Short and Written Off:The tribunal held that the demand for duty on finished goods found short was not sustainable in the absence of evidence of clandestine removal. The appeal was allowed in respect of this demand.6. Imposition of Penalty:The tribunal held that penalties under Rule 15(2) of the CENVAT Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944, were not justified as the entire case was based on the appellant's own documents, which were in the public domain. The penalties were set aside.Conclusion:The tribunal allowed the appeal, setting aside the demands and penalties imposed on the appellant. The tribunal held that the demands were not sustainable due to the lack of evidence of physical shortages and clandestine removal, and the penalties were not justified as the case was based on publicly available documents.