2015 (7) TMI 585

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....well as in packaged condition in drums and barrels. During verification by the department officials it was found that they carryout stock taking of the inputs on monthly basis at the end of the month the quantity of the inputs found to be short, were subsequently adjusted in their records as consumption. The appellants had not reversed the credit on the shortages of the inputs. Show cause notices dated 01.02.2005 and 06.05.2005 were issued demanding Rs. 37,25,361/- under Rule 57I and 57AH of Central Excise Rules, 1944 read with Rule 12/14 of Cenvat Credit Rules, 2004. The adjudicating authority in the impugned order confirmed the demand and imposed equivalent penalty of Rs. 31,30,637/- under Rule 57(I) (4) and 57 AH (2) of the Central Excise Rules and Rule 13 of Cenvat Credit Rules read with Section 11 AC of the Central Excise Act, 1944. He also imposed a penalty of Rs. 40,000/- under Rule (13) or 15 of Cenvat Credit Rules. 3. In Appeal No. E/141/2006, on identical issue, the Commissioner (Appeals) in his denovo order No. 90 & 91 (M-I) dated 30.09.2005, upheld the demand of Rs. 4,46,330/- and Rs. 12,811/- confirmed by the adjudicating authority and reduced the penalty. The appel....

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....of production and not in transit mostly due to leverage of measurement and secondly by dip measurement and thirdly by heating of the liquid. The minimum loss is permissible and they are not required to reverse the credit on the shortage. 6. In respect of solid inputs, the Ld. Advocate submits that these inputs are received in packaged conditions in drums or in barrels, which has to be cut open to remove the inputs thus results clinkage loss . He relied upon the following case laws in support of his contention. 1. UOI Vs. Hindustan Zinc Ltd 2013 (294) ELT 378 2. Hindustan Zinc Ltd. Vs. CCE, Visak 2004 (172) ELT 244 3. Denso Kirloskar Indus. Pvt. Ltd. Vs. CCE, Bangalore 2006 (195) ELT 102 4. BHEL Vs. CCE, Chennai-III 2008 (223) ELT 260 5. Asco (India) Ltd. Vs. CCE, Chennai 2007 (213) ELT 553 6. Collector of CE, Calcutta Vs. Jonson & Nicholson (I) Ltd. 1984 (16) ELT 658 7. Puran Sons Alloys Pvt. Ltd. Vs. CCE, Jaipur 2013 (291) ELT 65 8. CCE, Kanpur Vs. Bee Kay Enterprises 2010 (253) ELT 334 9. Atlas Conductors Vs. CCE, Mumbai 2008 (221) ELT 231 10. Nazareth Metal Vs. CCE, Mumbai 2006 (205) ELT 998 11. Ispat Industries Ltd. Vs. CCE, Raigad 2004 (175)....

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.... sides and perused the records. Prima facie the issue in this case relates to shortage of inputs not used in the manufacture of the final products and demand on reversal of cenvat credit on the shortage of inputs and imposition of penalty and invocation of extended period. The appellants are manufacturers of additives for lubricating oil. The main inputs are organic compounds ie., poly isobutene, alkyd phenol and amines. Out of the total inputs, the inputs Glissipal 1000, OLOA 200 and OLOA 262, on which major shortage noticed constitutes the extent of 54% of the total credit availed on the inputs. On perusal of records, I find that there is no dispute on the fact that the appellants have received the entire quantity of inputs and accounted in their stock as per the weighment recorded at the time of receipt in their factory and duly availed the credit. As seen from the show cause notice as well as in the adjudication order, the appellants adopted reconciliation of inputs stock at the end of every month and there were difference in the stock recorded as per the actual weighment and the quantity accounted as per the massflow meter. The difference in the stock between the actual weighm....

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....   As seen from the above table, I find that as rightly held by the adjudicating authority, there was no shortage between the physical stock and the book stock for more than 70% of the period. Not even a single or minor variation in the stock, whereas only for particular months (shown in bold) there is a huge shortage. If the difference is due to the measurement method between the actual weighment and the massflow meter is to be taken there is no consistency as indicated in the above table. If at all there is any inputs remained in the pipelines in a continuous process and then the same should have been reflected every month. There cannot be abrupt and sudden shortage of inputs only in particular months during the year. For example, in the case of input OLOA 200 and Glissipal 1000 , the shortage accounted are very substantial in terms of quantity, which was worked out by the adjudicating authority in his order which is reproduced as under:- OLOA 200 (in MT) Sl. No. Month Shortage 1 Mar.'00 5.244 2 Oct.'00 3.130 3 Jul.'01 4.526 4 Jan.'02 12.658 5 Apr.'03 3.807 6 Nov.'04 3.400 &nbs....

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....e. Similarly, the case laws relied upon by the appellant in the case of Asco (India) Ltd. (supra), the quantity of the shortage was 0.7% is includable quantity. Whereas, in the present case, as already discussed in the preceding paragraphs the loss is not due to evaporation or process loss and also the percentage of shortage is more than 5.56%. Therefore, case laws relied upon by the appellants clearly distinguished and the same are not applicable to the facts of the present case. 12. It is relevant to state that the Hon'ble Tribunal's LB in the case of Bhuwalka Steel Industries Ltd. (supra), has clearly laid down the guidelines for allowing credit on shortage of inputs. The relevant portion of the said decision is reproduced below:- "12. Considering arguments from both sides and the case laws cited by both sides which have been extracted above, we are of the considered view that different types of shortages cannot be dealt with according to any one inflexible and fixed standard for the purpose of allowing credit under Rule 3 (1) of the Cenvat Credit Rules. Decision to allow or not to allow credit in any particular case will depend on various factors such as the follo....

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.... the submission made by both sides. In this case, the fact is that the appellant has written off the quantities of inputs found short of excess by way of adjustment in their books of account after measurement of inputs by way of dip method. Therefore, the fact is admitted that they have written off the stock of inputs in their books of account and admitted the shortages. As per the Cenvat Credit Rules, 2004, an assessee is entitled to take credit on inputs which has gone in the manufacturing of final product. Admittedly, when these inputs have been found short and the said shortage has not gone in the manufacturing of final product, therefore, the appellants are required to reverse the Cenvat credit on those shortages after adjusting the excess quantity during the course of stock taking by way of dip method. The case law relied upon by the ld. Advocate for the appellants are not similar to the facts of this case. In this case, the shortages were written off by the assessee in their books of account. In this case, the appellants themselves have admitted the shortages. Therefore, the case laws relied upon by the ld. Advocate are not relevant to the instant case....................." ....