2023 (4) TMI 1453 - AT - Central Excise

CENVAT/Modvat credit allowed for duty on goods actually received; transit or storage losses do not bar credit

CESTAT MUMBAI - AT allowed the appeal, holding that CENVAT/Modvat credit is admissible to the extent of duty attributable to goods actually received in ... Availability of CENVAT credit - losses incurred during transportation and storage - HELD THAT:- In the appellants own case COMMISSIONER OF C. EX., NAGPUR VERSUS ASSOCIATED CEMENT COMPANIES LTD. [2004 (12) TMI 109 - CESTAT, MUMBAI] it was held that 'Modvat credit is available to the extent of duty, which was attributable to the goods received in the factory. Inasmuch as full quantity has been received the Modvat credit attributable to the weight of the moisture lost in transit from the suppliers end to the assesses end cannot be denied. The said decision was not taken note of by the single member bench of the Tribunal while deciding the issue in the case of Adhesives & Chemicals.' There are no merits in the impugned order - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether CENVAT credit is admissible in respect of input quantity loss occurring during transportation and storage (including loss attributable to moisture) where duty has been paid on the entire quantity at suppliers' end. Whether denial of CENVAT credit is justified when the physical weight of inputs at the manufacturer's premises is reduced due to moisture loss occurring after duty payment but prior to use in manufacture. Whether established tribunal and appellate authority precedents recognising credit on duty paid on quantities received at factory (despite transit losses) apply and are binding for the present factual matrix. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of CENVAT credit for inputs where loss in quantity occurred in transit/storage but duty was paid on full purchased quantity. Legal framework: CENVAT Credit Rules permit credit of duty paid on inputs used in manufacture; Section 11AB/Rule 14/Rule 15 (as invoked by Revenue in adjudication) govern interest, recovery and penalty for improper availment. Rule 57A (as relied upon in earlier authority referenced in the decision) addresses computation of modvat/CENVAT credit relative to inputs received and duty paid. Precedent treatment: Multiple tribunal decisions cited in the judgment (including Tribunal benches and larger/coordinate bench rulings) have held that where duty has been paid on the entire quantity supplied and the full quantity was received at the assessee's premises, credit cannot be denied on account of subsequent moisture loss; modvat/CENVAT credit is to be allowed in respect of the duty attributable to the goods received. Specific precedents cited include decisions which the Tribunal followed rather than distinguished. Interpretation and reasoning: The Tribunal reasons that the decisive fact is payment of duty by the purchaser/assesse on the entire purchased quantity and receipt of that quantity at the factory premises. Loss of moisture occurring after the duty-paid transfer does not constitute loss of inputs prior to their use; therefore the quantum of credit, being based on duty paid on inputs as received, cannot be variated on account of post-receipt moisture loss. The underlying rationale is that CENVAT credit corresponds to the duty paid on inputs received and available for use, and incidental changes in weight due to moisture do not negate the fact of duty payment on the quantity received. Ratio vs. Obiter: The holding that CENVAT credit cannot be denied where duty was paid on full quantity and loss is attributable to moisture during transit/storage is treated as ratio - a binding conclusion applied to set aside the denial of credit in the impugned order. References to authority contrasting rulings that took different views are treated as explanatory and supportive rather than obiter. Conclusion: CENVAT credit is admissible for the duty paid on the full quantity purchased and received at the factory even though there was loss in quantity due to moisture during transit/storage; denial of credit on that ground lacks merit. Issue 2: Validity of revenue's denial of credit and imposition of recovery/interest/penalty for the quantified losses. Legal framework: Recovery of duty, imposition of interest under Section 11AB and penalties under Section 11AC (read with appropriate rules) are permissible only if availment of credit was improper under law and facts. Precedent treatment: Tribunal authorities relied upon indicate that where credit is permissible because duty was paid on the full quantity received, revenue's attempts to disallow credit and levy consequent duty/interest/penalty are unsustainable. The judgment cites and follows coordinate and larger bench precedents that have reached this conclusion under similar factual matrices. Interpretation and reasoning: Given the conclusion that credit was lawfully available, the consequential demand for recovery of duty, interest and equal penalty under the cited provisions cannot be sustained. The Tribunal's analysis treats the impugned demand and penalty as arising from an incorrect legal stance by the adjudicating authority; since the underlying denial of credit is overturned, the recovery and penalties based thereon must fall. Ratio vs. Obiter: The decision that the adjudication order demanding duty, interest and penalty is without merit (and is therefore set aside) is delivered as part of the operative ratio. Observations about the correct legal approach to such factual scenarios are binding for purposes of this appeal; any broader comments on enforcement policy are ancillary. Conclusion: The demand for recovery, interest and penalty founded on denial of credit for transit/storage moisture loss is not maintainable; appeal is allowed and the impugned order is set aside. Cross-references and synthesis The Tribunal explicitly aligns its reasoning with prior decisions holding that (i) duty paid on inputs should determine credit entitlements where full quantity was received at the assessee's premises and (ii) moisture loss in transit/storage does not equate to loss of inputs prior to use. These precedents were followed and applied, not distinguished or overruled, to conclude that the impugned denial of credit (and attendant duty/interest/penalty) lacks merit.