2018 (12) TMI 237 - AT - Central Excise

Manufacturing company's penalties overturned for excess Cenvat credit misuse. Denial upheld for rejected products.

M/s. Summit Auto Seats Industry Versus Commissioner of Customs, Central Excise & Service Tax, Noida

M/s. Summit Auto Seats Industry Versus Commissioner of Customs, Central Excise & Service Tax, Noida - TMI Issues:- Discrepancy in availing Cenvat credit on inputs- Allegation of excess input credit availed without actual use- Denial of Cenvat credit on rejected products- Confirmation of demands, interest, and penaltyDiscrepancy in availing Cenvat credit on inputs:The case involved a manufacturing company availing Cenvat credit on duty paid inputs, capital goods, and input services under the Cenvat Credit Rules, 2004. An audit revealed significant variations in the ratio of inputs used and finished goods manufactured during the financial years 2006-07 and 2007-08. The Revenue alleged that excess input credit was availed without actual utilization in the final product manufacturing process. The appellant attributed the discrepancy to abnormal production loss due to processing issues in the initial year of manufacture, leading to higher input consumption. The adjudicating authority confirmed demands amounting to a substantial sum, including interest and penalty, based on the alleged excess credit availed.Allegation of excess input credit availed without actual use:The Revenue contended that the appellant had availed excess input credit without utilizing the inputs in the final product manufacturing process. The show cause notice proposed denial of Cenvat credit, including on rejected products, amounting to a significant sum. The adjudicating authority upheld the demands and penalties, citing the comparison of input consumption figures for the two financial years as the basis for denying the credit. However, the Tribunal found no merit in the Revenue's stand, emphasizing that the final product quantity cannot be determined solely based on input-output ratios. The Tribunal noted that the loss of inputs during manufacturing does not justify denying credit, especially when the inputs were issued for production and converted into waste or scrap during the manufacturing process. Consequently, the demand and penalty were set aside.Denial of Cenvat credit on rejected products:Regarding the denial of Cenvat credit on rejected products, the Tribunal observed that the appellant had admitted liability for the duty on such goods during adjudication and did not contest the same. The confirmation of the denial of credit on rejected products was upheld. However, considering the absence of malafide intent and proper record-keeping by the appellant, the Tribunal set aside the penalty imposed on the appellant in this regard.Confirmation of demands, interest, and penalty:The impugned orders confirmed demands, interest, and penalties against the appellant based on the alleged excess credit availed and the denial of credit on rejected products. However, the Tribunal, after a detailed analysis, set aside the demands and penalties, emphasizing the lack of evidence to support the Revenue's contentions and the legitimate utilization of inputs by the appellant. The Tribunal disposed of the appeal by setting aside the demands and penalties while upholding the denial of credit on rejected products due to the appellant's admission of liability.