2017 (7) TMI 642 - AT - Central Excise

Tribunal ruling on Cenvat credit for clinker stock, HDPE Bags losses

The Tribunal found no evidence of clandestine removal of inputs and deemed the losses as natural, following precedents. The appellant was denied Cenvat ... Shortage of goods - Clinker & HDPE Bags - appellant claims that the allegation of clearance/removal of Clinker & HDPE Bags clandestinely is vague and presumptive and not corroborated with any evidence - CENVAT credit - Held that: - there is no allegation in the Show Cause Notice of any clandestine activity on the part of the appellants. The whole Show Cause Notice is based on the apparent shortage found at the time of inspection. Moreover, I find that the valuation of stock have been done basically by way of eye estimation, which is definitely prone to error. This issue have been repeatedly considered by Hon’ble Allahabad High Court, in the case of UP. STATE CEMENT CORPORATION LTD. Versus UNION OF INDIA [1996 (4) TMI 139 - HIGH COURT OF JUDICATURE AT ALLAHABAD], wherein the Hon’ble High Court have accepted that clinker is an item prone to handling, transportation and manufacturing loss. Hon’ble High Court have further held that such loss is under the category of normal loss requiring no special order of remission from the appropriate authority under Rule 21 of the CER, 2002. The appellant shall be entitled to take credit, of the Cenvat credit reversed for HDPE Bags. Further, I find that there is no contumacious conduct nor any suppression of facts as is evident on the face of the record. In this view of the matter, I set aside the balance demand of Cenvat credit as confirmed, vide the impugned order under Rule 15 (2) of Cenvat Credit Rules, 2004. I also set aside the penalties imposed, under all the Sections and/or Rules. The appellant shall be entitled to take credit of the balance Cenvat, if any. Appeal allowed - decided partly in favor of appellant. Issues Involved:1. Shortage and excess of stock of inputs and final products.2. Allegation of clandestine removal of inputs without payment of duty.3. Denial of Cenvat credit due to the shortage of inputs.4. Natural loss during handling and transportation of clinker.5. Penalties imposed under Rule 15(2) of Cenvat Credit Rules, 2004 and Rule 27 of Central Excise Rules, 2002.Issue-wise Detailed Analysis:1. Shortage and Excess of Stock of Inputs and Final Products:The appellant's factory was inspected on 28/09/2005, revealing discrepancies in the stock of clinker, HDPE Bags, gypsum, and fly ash. The physical stock of clinker was significantly less than recorded, while fly ash was found in excess. The stock of HDPE Bags and gypsum also showed shortages. The discrepancies were confirmed by the plant supervisor and the manager of the company in their statements.2. Allegation of Clandestine Removal of Inputs Without Payment of Duty:The Revenue alleged that the appellant cleared or removed Cenvatable inputs (clinker and HDPE Bags) without paying duty or reversing the Cenvat credit, suppressing this fact from the Department. The appellant argued that the shortages were due to natural losses during handling and transportation, and not due to any clandestine removal.3. Denial of Cenvat Credit Due to the Shortage of Inputs:The Revenue issued a Show Cause Notice demanding the reversal of Cenvat credit taken on the inputs found short, amounting to Rs. 25,71,875/-. The appellant contested this, stating that the allegations were vague and not supported by evidence of any clandestine removal. They also highlighted that the stock-taking was done by approximation, not by actual measurement.4. Natural Loss During Handling and Transportation of Clinker:The appellant argued that the losses were natural and occurred during handling and transportation, citing previous judgments by the Hon'ble Allahabad High Court, which accepted such losses as normal. The High Court had previously ruled that losses during transit and handling of clinker were natural and should be allowed, as there were no statutory provisions regulating the extent of such losses.5. Penalties Imposed Under Rule 15(2) of Cenvat Credit Rules, 2004 and Rule 27 of Central Excise Rules, 2002:The adjudicating authority confirmed the demand of Cenvat credit and imposed penalties under the relevant rules. The appellant appealed against this, arguing that there was no evidence of clandestine removal or suppression of facts. The Tribunal found that there was no allegation of clandestine activity in the Show Cause Notice and that the stock valuation was prone to error due to being done by eye estimation.Judgment:The Tribunal concluded that there was no evidence of clandestine removal of inputs. The losses were considered normal, as accepted by previous High Court rulings. The appellant was directed not to be entitled to Cenvat credit on the clinker stock as of 01/04/2005, but allowed to take credit for HDPE Bags. The balance demand of Cenvat credit was set aside, along with the penalties imposed. The appeal was allowed in part, with the appellant entitled to consequential benefits.