AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 284
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....nd 27.10.2009, were issued by the Commissioner of Central Excise, Chennai demanding a sum of Rs. 31,30,637/-, Rs. 5,94,724/-, Rs. 2,74,481/- respectively being the MODVAT/CENVAT credit taken on inputs, which were not used in the manufacture of final products, during the periods from January 2000 to March 2004, April 2004 to January 2005 and March 2009 respectively. The appellant sent replies to the said Show Cause Notices stating that the the shortage was due to heat, evaporation and differences in measurement methodologies. After considering the reply of the appellant, the jurisdictional Commissioner and the Commissioner (Appeals), passed orders confirming the demand made in the Show Cause Notices, with applicable rate of interest and also imposing penalty. Aggrieved against the same, the appellant is before this Court with the present Appeals. 3. Heard the learned counsel for the appellant and the learned counsel for the respondent. Perused the materials available on record. 4. Perusal of records would show that the appellant is engaged in manufacture of additives for lubricating oil classifiable under Chapter 38 of the Central Excise Tariff Act, 1985. The appellant availed....
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....ctory and by the very nature of the materials, there will be a physical change, through thickening, based on the temperature level. The appellant further submitted that it is not possible for them to use the raw materials as such, and the tanks are equipped with heating facility and a temperature gauge, to monitor and measure the temperature. After heating the tank, they draw the material and the quantity drawn for consumption is measured by mass-flow meter, before using in production. Since only weighbridge was used at the time of receipt, and a different measurement device viz. mass flow meter was used for flowing liquids, a reconciliation was done, at the end of every month. The appellant also contended that Cenvat Credit Rules do not provide for reversal of credit, based on the difference in measurement methodologies. 6. It is contended by the appellant before the authorities that shortage was inevitable due to the nature of inputs, the process involved in the manufacture, when huge volume of materials handed. Before the authorities below, to substantiate their claim, the appellant has cited various decisions of the Tribunal viz., P.K.P.N.Spinning Mills Vs. Collector of Cent....
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....nbsp; Qty in MT A. GLISSOPAL 1000 (Poly Iso Butene) April May June July Aug Sept Oct Nov Dec Jan Feb Mar Physical Stock 117.808 108.185 189.766 56.626 56.626 206.086 284.466 193.000 55.161 79.690 120.964 0.000 Book Stock 117.808 108.185 191.844 59.470 56.626 206.086 284.466 193.000 50.161 79.690 120.964 0.000 Variation 0.000 0.000 -2.078 -2.844 0.000 0.000 0.000 0.000 5.000 0.000 0.000 0.000 B.OLOA 200 Physical Stock 70.226 137.999 195.745 71.863 170.632 146.261 177.863 77.962 119.607 222.767 182.925 145.158 Book Stock 70.226 137.999 ....
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.... 223.995 141.253 200.455 203.870 103.103 101.527 6.571 33.556 32.726 Variation 0.000 0.000 0.000 -1.206 0.000 1.710 0.000 -3.400 0.000 -1.680 B.OLOA 262 Physical Stock 89.981 54.151 21.988 12.071 89.519 99.062 99.871 73.569 86.319 19.118 Book Stock 89.981 54.151 21.988 12.071 89.519 99.062 99.871 73.569 86.319 19.130 Variation 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 -0.012 12. The above tabular column would go to show that shortages noticed, during the monthly stock takings, during some of the months, cannot be attributed to the difference in measurement methodology. When there is no variation in majority of the months, shortages as detailed below, which are substantial, in terms of quantity, does not substantiate the argument of the appellant. OLOA 200 (in MT) Sl.No Month Shortage OLOA 200 (in MT) 1 Mar ....
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....from 01.01.2000 to 31.03.2004 and penalty of Rs. 40,000/- for the period from 01.04.2004 to 31.01.2005. He also ordered that the appellant is liable to pay interest, at the appropriate rate under the relevant provisions. 15. Further more, there was another Show Cause Notice dated 27.10.2009 by the Deputy Commissioner of Central Excise, on similar facts, for an amount of Rs. 2,74,481/- being the cenvat credit taken on the shortage of inputs. In response to the same, the appellant has sent a reply stating the same reasons, viz., difference in methodology etc., The Deputy Commissioner of Central Excise vide Order-in-Original No.12/2010 dated 28.05.2010 passed an order, demanding a sum of Rs. 2,74,481/-, as detailed in the Show Cause Notice dated 27.10.2009, with applicable interest. Penalty of Rs. 2000/- was also imposed. Against which, the appellant has preferred an appeal before the Commissioner of Central Excise (Appeals), Chennai. The Commissioner (Appeals), vide order dated 20.02.2013 made in Order-in-Appeal No.28/2013 (M-I), allowed the appeal, in respect of penalty, and dismissed the appeal in respect of the demand and interest. 16. Aggrieved against the Order-in-Original....
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....rring the materials from storage tanks through pipelines within the factory, there is considerable amount of loss of material due to evaporation, which resulted in maximum loss of approximately 5.58% of input materials. 20. The said contentions of the appellant cannot be countenanced for the reason that there cannot be continuous shortage of inputs for every month. Since liquid inputs have high viscosity and not volatile in nature, there cannot be any evaporation loss, even while heating the material in the storage tanks. Moreover, the appellant has never advanced any ground of evaporation before the adjudicating authority, but only argued that the difference was due to weighment methods. The stand taken by the appellant that inputs remained in the pipeline during the process of transit, cannot be accepted, for the reason that, if the raw materials remained in the pipeline, in the continuous process, the shortage should be at one time, as in the first-in first-out, and there cannot be continuous shortage during the process of transit. Further, it is seen from the material on records that on verification of physical stock and book stock for the year 2001-02, there was no shortage....
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....51.349 101.482 49.526 97.507 92.555 35.774 23.827 55.663 104.442 58.042 39.141 Variation 0.000 0.000 0.000 0.000 -0.575 0.000 -0.090 -2.200 0.502 1.678 0.000 -0.133 If there was shortage of physical stock, due to evaporation while heating (or due to weighment methods), the appellant could have explained the same, in their reply to the Show Cause Notice. But it is clear that the appellant has neither explained the same before the officials nor before the Tribunal. From the above table, it is seen that for the input OLOA 200, there was highest shortage of 12.658 MT in the month of January 2002 and 5.244 MT, in the month of March 2000. Similarly, in the case of Glissopal 1000, the highest shortage of 13.510 MTs was noticed in the month of May 2000 and 10.453 Mts, in the month of January 2001. The inputs have high viscosity and not volatile in nature. Considering the fact that shortage of inputs has been accounted only for specific months, and not in a continuous manner, it is established that shortage of inputs, is not on account of mere difference in variation of weighment methodology, but the said quan....
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....ent machines will also have to be ignored if such variations are within tolerance limits. In our view, each case has to be decided according to merit and no hard and fast rule can be laid down for dealing with different kinds of shortages. 23. In the said decision, the Larger bench of the Tribunal has clearly laid down the conditions and held that while complying the above tolerance limit for each entry is to be allowed, if there are any minor violations due to weighment method should be ignored, provided such violations are within the tolerance limit. Whereas, in the present case, the shortage is neither attributed due to volatile nature nor the percentage of shortage is negligible, as the appellant themselves have stated that the shortage is 5.58%. The appellant has failed to put forth any justifiable reason that the shortage was purely due to the difference in actual weighment, and mass-flow meter. In the present case, very high abnormal shortage of inputs ranging from 3.0 Tons to 12.658 Tons, in respect of OLOA 200 and in the case of Glissopal 1000, from 3.3 Tons to 13.51 Tons. The appellant has deliberately adjusted the shortage in their internal records, as consumption of ....