2023 (3) TMI 1542 - AT - Central Excise

Cenvat credit cannot be denied based on theoretical variance in inputs during stock verification

The CESTAT Mumbai allowed the appeal against reversal of Cenvat credit on inputs found short during stock verification from April 2011 to December 2011. ... Reversal of Cenvat credit taken by the assessee on the inputs found short at the time of stock taking during the period from April, 2011 to December, 2011 - Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A(1) of the Central Excise Act, 1944 - recovery alongwith interest and penalty as well - HELD THAT:- The issue is no longer res integra and has been settled in appellant’s own case M/S TATA MOTORS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I [2021 (11) TMI 830 - CESTAT MUMBAI] - Tribunal in the said decision has observed 'CENVAT Credit cannot be denied to the appellant on a theoretical variance in the inputs.' There are no merits in the impugned order and the same is set aside - appeal allowed. Issues Involved:1. Confirmation of demand for Cenvat credit on inputs found short.2. Recovery of interest on the demanded Cenvat credit.3. Imposition of penalty on the assessee.4. Applicability of Rule 3(5B) of the Cenvat Credit Rules, 2004.5. Consideration of previous Tribunal decisions in similar cases.Detailed Analysis:1. Confirmation of Demand for Cenvat Credit on Inputs Found Short:The primary issue in the judgment was whether the demand for Cenvat credit amounting to Rs. 61,79,285/- should be confirmed. This demand was based on the alleged shortage of inputs during the stock-taking period from April 2011 to December 2011. The Commissioner of Central Excise, Pune-I, in the Order-in-Original, confirmed this demand under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11A(1) of the Central Excise Act, 1944. The Tribunal, however, found that the shortages and excesses were theoretical due to the large volume of inputs handled and noted that there was no removal of inputs without payment of duty. The Tribunal relied on previous decisions in the appellant's own cases, which had settled the issue in their favor, indicating that such minor discrepancies were commercially acceptable and did not warrant denial of Cenvat credit.2. Recovery of Interest on the Demanded Cenvat Credit:The order also included the recovery of interest on the confirmed demand for Cenvat credit. This was ordered under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11AA of the Central Excise Act, 1944. However, given the Tribunal's finding that the demand itself was not justified, the recovery of interest was also set aside. The Tribunal's decision was influenced by the fact that the inputs were available within the factory premises and were not clandestinely removed, thus negating the basis for interest recovery.3. Imposition of Penalty on the Assessee:A penalty equivalent to the Cenvat credit amount was imposed on the assessee under Rule 15(2) of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944. The Tribunal, following its reasoning that the demand for Cenvat credit was not sustainable, also set aside the penalty. The Tribunal emphasized that mere allegations of suppression or intent to wrongfully avail credit were insufficient without concrete evidence, which was lacking in this case.4. Applicability of Rule 3(5B) of the Cenvat Credit Rules, 2004:The Tribunal examined whether Rule 3(5B), which mandates payment of an amount equivalent to the Cenvat credit taken on inputs that are written off, was applicable. It concluded that this rule applies only when goods are present in the factory and a book entry is made to write off their value. Since the department's case was based on the absence of goods in the factory, Rule 3(5B) was deemed inapplicable. The Tribunal reiterated that the inputs were received and accounted for properly, and there was no evidence of their removal from the factory.5. Consideration of Previous Tribunal Decisions in Similar Cases:The Tribunal heavily relied on its previous decisions in the appellant's own cases, where similar issues were adjudicated in favor of the appellant. These decisions highlighted that minor discrepancies in inventory, given the scale of operations, are not unusual and do not justify denial of Cenvat credit. The Tribunal noted that the shortages were negligible (0.59% approximately) and commercially acceptable. It also emphasized that the department had not provided evidence of any clandestine removal of inputs, reinforcing the appellant's bona fide claim for Cenvat credit.In conclusion, the Tribunal set aside the impugned order, allowing the appeal and emphasizing the importance of judicial consistency and the need for concrete evidence in cases involving alleged discrepancies in input inventories.