2016 (8) TMI 885 - AT - Central Excise

Tribunal rejects modvat credit demand lacking evidence, emphasizes in-process materials

The Tribunal set aside the demand for inadmissible modvat credit due to lack of evidence supporting excess consumption of raw materials or clandestine ... Modvat credit - Job-work - raw materials sent out to the premises of job worker for conversion into aluminium wire and PVC compound - suppression of exact quantity of input used - an unreasonable amount of invisible loss at the hands of the job worker while conversion of PVC resin into PVC compound has been claimed - Held that:- the observation of excess process loss is supported by testing of a few samples of finished products. There is no justification for taking such percentage across the board for all products in the light of the contention of the appellant that they manufacture different types of goods and the process loss may vary depending upon the design of the product and even the reasons. There is nothing on record to substantiate clandestine clearance of finished products or even diversion of inputs without using the same in the manufacture of the finished products. Therefore, demand is unsustainable. - Decided in favour of appellant Issues:1. Challenge against demand of inadmissible modvat credit.2. Evidence of manufacturing goods in accordance with samples drawn.3. Consideration of in-process material in demand calculation.4. Excess consumption of raw material and clandestine removal of finished products.5. Justification for excess process loss and restriction on credit taken.Issue 1: Challenge against demand of inadmissible modvat creditThe appeal was against the demand of &8377; 127934/- on inadmissible modvat credit due to alleged suppression of the exact quantity of input used. The demand was based on an unreasonable amount of invisible loss during the conversion process, specifically 4.71% for aluminium wire and 6.35% for PVC, as opposed to normal losses of about 1%.Issue 2: Evidence of manufacturing goods in accordance with samples drawnThe appellant contested the demand on grounds that there was no evidence to prove that they manufactured goods only in accordance with the samples drawn. They argued that in-process materials at various stages were not considered, and there was no confirmation of excess consumption of raw materials or clandestine removal of finished products, deeming the demand unjustified and arbitrary.Issue 3: Consideration of in-process material in demand calculationThe appellant highlighted the importance of considering in-process materials at various stages of manufacture in the demand calculation. They argued that the lack of evidence to confirm excess consumption of raw materials or clandestine removal of finished products rendered the demand confirmation unjustified and arbitrary.Issue 4: Excess consumption of raw material and clandestine removal of finished productsThe appellant emphasized the absence of evidence supporting excess consumption of raw materials or clandestine removal of finished products. They contended that without such evidence, the confirmation of demand against them was unwarranted and arbitrary.Issue 5: Justification for excess process loss and restriction on credit takenThe Tribunal noted that the Central Excise Rules did not provide for restricting credit taken due to claimed excess process loss. The observation of excess process loss was based on testing a few samples of finished products, but there was no justification for applying such percentages universally across all products. The lack of evidence for clandestine clearance of finished products or diversion of inputs without using them in manufacturing led the Tribunal to set aside the demand, except for the uncontested amount of &8377; 9338/-.This detailed analysis of the judgment provides insights into the various issues raised, the arguments presented by the appellant, and the Tribunal's reasoning in setting aside the demand except for a specific uncontested amount.