2004 (4) TMI 197 - AT - Central Excise

Tribunal Allows Appeals: Losses in Manufacturing Deemed Reasonable, Modvat Credit Rightfully Granted, No Extended Limitation.

HINDUSTAN ZINC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, VISAK

HINDUSTAN ZINC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, VISAK - 2004 (172) E.L.T. 244 (Tri. - Bang.) Issues Involved:1. Irregular availment of Modvat credit on lead and zinc concentrate found short and written off.2. Whether the loss on inputs during annual stock taking is allowable u/r 57D of the Central Excise Rules.3. Applicability of the limitation period for demanding duty.Summary:Issue 1: Irregular Availment of Modvat CreditThe appellants, engaged in the manufacture of Zinc Ingots, were charged with irregularly availing Modvat credit on lead and zinc concentrate found short and written off in the balance-sheet for the years 1996-97 and 1997-98. The shortages, less than 1.5%, were attributed to handling loss, moisture loss, fly-over losses, and approximate weight measurements. The appellants argued that the entire quantity of inputs was received and used within the factory, and the losses were part of the manufacturing process. They relied on Rule 57A(4) and various judicial decisions to support their claim that credit cannot be denied for such losses.Issue 2: Allowability of Loss on Inputs u/r 57DThe Tribunal examined whether the loss on inputs found during annual stock taking and written off in the books should be considered allowable under Rule 57D. Rule 57D states that credit of duty shall not be denied if inputs become waste in or in relation to the manufacture of the final product. The Tribunal found that the inputs were received and used within the factory, and the losses occurred during the manufacturing process. The Tribunal cited previous decisions, including their own in Final Order No. A/373/03-NB-C, and concluded that credit cannot be denied for such losses. The Tribunal also referenced cases like HPCL v. CCE and Modi Cement Ltd. v. CCE, which supported the admissibility of Modvat credit for losses during manufacturing.Issue 3: Applicability of Limitation PeriodThe appellants argued that the entire demand was barred by limitation as there was no fraud, wilful mis-statement, collusion, or suppression of facts. They contended that the credit was taken on documented quantities received in the factory, and the department's demand was based on shortages found during their own verification. They relied on judicial decisions like CCE v. Chemphar Drugs & Liniments and Pushpam Pharmaceuticals Co. v. CCE to argue that the longer period of limitation could not be invoked when facts were known to the department and proper accounts were maintained.Conclusion:The Tribunal concluded that the losses were reasonable and occurred during the manufacturing process. Therefore, credit cannot be denied under Rule 57D. The orders of the Commissioner were set aside, and all appeals were allowed.