TaxTMI 
TaxTMI 
2022 (12) TMI 1499
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....e Act, 1944. I order appropriation of an amount of Rs. 21,98,785/- already paid by them against the confirmed demand. ii. I order recovery of interest on the amount confirmed above, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944 and appropriate an amount of Rs. 2,51,653/- already paid by them as interest. iii. I confirm the demand of Rs. 21,75,023/- equal to cenvat credit availed by them on insulation material without having received the same in their factory, under Rule 14 of the Cenvat Credit Rules, 2004, read with section 11A(1) of the Central Excise Act, 1944, I order appropriation of an amount of Rs. 21,75,023/- already paid by them against the confirmed demand. iv. I order recovery of interest on the amount confirmed as above, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944, and appropriate an amount of Rs. 4,04,542/- already paid by them as interest. v. I confirm the demand of Central Excise Duty amounting to Rs. 23,37,519/- on the inventory of damaged/rejected/non saleable goods written off in their books of account, under section 11A(1) of the ....
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....hat these capital goods were never received and installed in their factory. Appellant had vide their letter dated 07.01.2009, addressed to DGCEI, Regional Unit, Pune intimated that they have deposited an amount of Rs. 25.00 lakh vide TR-6 challan dated 06.01.2009, which includes an amount of Rs. 21.98 lakh towards reversal of irregular CENVAT credit together with interest, amounting to Rs. 2.51 lakh, taken on the paint shop, procured from M/s Intech Surface Coating Pvt. Ltd., Pune, without having received or installed the same in their Pune plant. 2.4 Appellant have availed CENVAT credit on insulation material shown to have been received from their sub-contractor M/s. Singh & Singh, Jamshedpur. The investigations however, revealed that appellant had never received the insulation material at their Pune plant and the same was directly sent to their Jamshedpur unit. Thus they had wrongly availed CENVAT credit amounting to Rs. 19.97 Lakhs without actually receiving material, so the same was required to be reversed. It was also found that Appellant had availed double Cenvat credit on some of the invoices. Therefore, the Cenvat credit wrongly availed twice on the same invoices amounti....
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....on rest of the goods written off, is required to be reversed by them. • contravened the provisions of Rules 4, 6 and 11 of Central Excise Rules, 2002 and Rule 3(1), 3(5) & 3 (5B) of CCR, 2004 with intention to evade payment of Central Excise duty on the goods found short. Therefore, proviso to Section 11A (1) of CEA, 1944 for extended period of limitation is invokable. • liable to pay Central Excise duty/ reverse CENVAT credit on the finished goods/raw material/WIP etc. found short. • liable to pay Cenvat credit on the inputs/capital goods which were not used in the manufacture of finished goods in their factory. • are also liable to pay interest on the amount of Central Excise duty evaded/ Cenvat credit wrongly availed on the goods written off, under Section 11AB of CEA, 1944 read with Rule 14 of CCR, 2004 • liable for penalty under Section 11AC of the Act and Rule 15(2) of CCR, 2004 for the acts of omission and commissions. 2.7 A show cause notice dated 21.02.2011 was issued to the appellant asking them to show cause as to why:- i. The CENVAT credit amounting to Rs. 21,98,785/- (Rs. twenty one lakhs nine....
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.... Central Excise duty on the Finished Goods found short and written off and Cenvat credit on the Raw Materials/ Inputs/ WIP found short and written off fully in their books of account, totally amounting to Rs. 2,09,90,046/- (Rs. Two Crores Nine lakhs ninety thousands and forty six only) as shown in Annexure "A" to this show cause notice, should not be demanded and recovered in terms of Section 11A(1) of CEA, 1944 read with Rule 14 of CCR, 2004 and why the amount of Rs. 1,06,90,268/- already paid by them during investigation as mentioned in para 12 & 14 above should not be appropriated against the above demand. viii. Interest on the above CENVAT credit/duty amount should not be recovered under Rule 14 of CCR, 2004 read with Section 11AB of the CEA, 1944. ix. Penalty should not be imposed upon them under Section 11AC of the CEA, 1944. x. Penalty should not be imposed upon them under Rule 15(2) of CCR, 2004. 2.6 The show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved appellants have filed this appeal. 3.1 We have heard Shri Rajesh Ostwal, Ms Payal Nahar Advocates & Ms Hanisha Jatania, Chartered Accountant....
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.... TMI 1797 - CESTAT MUMBAI] • Tata Motors Ltd. [2021 (11) TMI 830 CESTAT MUMBAI] • Hindustan Zinc Ltd. [2021 (10) TMI 482 - CESTAT NEW DELHI] • Hindustan Zinc Ltd. [2021 (8) TMI 935 - CESTAT NEW DELHI] • BCH Electric Ltd. [2016 (344) ELT 469 (T)] • HSIL Ltd. [2019 (2) TMI 846 - CESTAT HYDERABAD] • Volkswagen India Pvt. Ltd. - 2019 (5) TMI 971 - CESTAT MUMBAI • No demand of duty can be made under Rule 14 of Cenvat Credit Rules, 2004 in respect of non-compliance under Rule 3(5) /Rule 3(5B) for the period prior to 1.3.2013. The entire period involved in the present case is prior to 1.3.2013. Prior to insertion of Explanation vide Notification No. 3/2013-CE (NT) dated 1.3.2013, there was no recovery provisions. • Ericsson India Pvt. Ltd. [2019 (3) TMI 776 - DEL] • Heidelberg Cement India Ltd. [2017 (11) TMI 1394-Bang] • Steel Authority of India Ltd. [2020 (3) TMI 147-Chennai] • The department has not produced any evidence to prove that finished goods have been removed by the appellants clandestinely. • Pentagon Steel Pvt. ltd. [2013 ....
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.... Shop in their factory without receiving these Capital goods in their factory premises; II. whether the assessee is eligible for cenvat credit on insulation material without physically receiving the same in their factory premises; III. whether the cenvat credit of inputs, which were used in the manufacturing process upto the WIP stage, and later on these WIP goods were categorized as non saleable and therefore no C.Ex duty was discharged on these goods or remission of duty was applied for, is reversible by them; IV. whether cenvat credit availed on goods, which were found short during the physical inventory and which appeared to have not been used in the manufacture of finished goods, since the goods found short were written off in their books of account, was reversible to the extent of cenvat credit attributable to these written off shortages in terms of Rule 3(5B) of CCR, 04, and V. whether Central Excise duty is recoverable from the assessee in respect of finished goods found short and which appeared to have been cleared without payment of duty and without issue of invoices. 44. Before dealing with the issues before me, in order to co....
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....for manufacture of same final products. However, in the instant case the capital goods were neither brought into the factory of production nor put to any use, although the cenvat credit on the same was availed. Similarly, the decision in the case of Contech Instruments Ltd. Vs. CCE, Belapur - 2010 (262) ELT 671 (Tri.MUM) would also not be of any help to the assessee because in that case the issue was regarding reversal of cenvat credit taken on inputs which were sent for processing whereas the facts in the present case are totally different. Thus I uphold the demand raised in the show cause notice on this issue. b. Eligibility of cenvat credit on insulation material without physically receiving the same in their factory premises - In this regards, I find that the cenvat credit amounting to Rs. 19,96,960/- has been reversed by the assessee along with interest of Rs. 3,68,850/-. insulation material was delivered at their vendor's premises in Jamshedpur In this case also the but the credit of the same was taken by the assessee, clearly in contravention of Rule 3(1) of CCR, 04, which stipulates that a manufacturer can avail credit of duty 'paid on any input or....
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....re of exempted goods, the only method to which he can avail of is by following sub-rule 2. Sub-rule 2 provides for maintaining accounts.' 'Para -27 - In the light of the above discussion, in our opinion, it is not possible to accept the contention as advanced on behalf of the assessee that the said rule can be read differently. The assessee's submission has been that he gives up the credit which he had taken before the goods leave the factory premises. That amounts to compliance with Rule 6(1). The language of Rule 6(1) is not to grant credit to an assessee except in circumstances mentioned in sub-rule (2). We have therefore no hesitation in rejecting the said contention. It will not be possible in that context to read the rule as directory as sought to be contended on behalf of the assessee. The rule would have to be followed. In other words, it is mandatory, if an assessee seeks to avail of Cenvat credit as set out in the rule.' The sum and substance of the aforesaid dictum is that if a particular rule in the statute mandates doing of a thing in a particular manner, it should be done in that manner and the assessee cannot adopt his own methodolog....
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....ain contention here is that the DGCEI has accepted duty on scrap for such quantity covered by book value of write off of Rs. 1,22,48,559/- and therefore they will have to demand duty only on scrap value even for such quantities covered by write off of book value amounting to Rs. 1,41,83,975/-. Here, I find the un-retracted statement of the Shri Bhadkamkar, Head (Finance) dtd. 13.7.09, very vital, because in his statement he has, inter alia, submitted that they have verified the whole issue and found that the amount of Rs. 2.63 Crores had been adjusted by way of deduction from the closing stock as on 31.3.08; that out of the said stock they are able to account for goods worth Rs. 1.20 Crores only, which are attributable to Work in Progress stock (WIP) at that time; that the same is either used in the manufacture of goods or sold as scrap on payment of duty;. that as regards the remaining amount of Rs. 1.43 Crores they have not been able to account for. Thus the assessee have themselves admitted that they were not able to account for goods worth Rs. 1.43 Crores. In such a situation the burden of proof lies upon them to prove that these goods valued at Rs. 1,41,83,975/- were indeed cl....
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.... out of the total shortages of Rs. 15.23 crore, cenvat credit on goods valued at Rs. 1.53 has not been taken by the assessee as per their own calculations. In respect of the remaining goods valued at Rs. 13.70 crore (Finished goods of Rs. 0.50 Crore and balance goods valued at Rs. 13.20 Crore found short) the assessee have not disputed the fact that they had availed cenvat credit on the raw materials used in the WIP/finished goods etc. found short. In their submissions the assessee have claimed that the Insulation material valued at Rs. 95,95,402/-, on which they have reversed the wrongly availed cenvat credit of Rs. 21.75 lakhs, had been booked in the shortages although the material had not been received in their factory. Since this shortage is accounted for in the WIP shortages, the inventory of net shortages was re-calculated at Rs. 12,73,66,816/- after deducting the amount attributable to the insulation material. The cenvat credit reversible on this recalculated amount of shortages has been calculated at Rs. 2,09,90,046/-(which includes shortages of finished goods valued at Rs. 50,50,670/- on which the C.Ex. duty works out to Rs. 8,32,350/-) However, the assessee have only reve....
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....1, Shri Badkamkar, Head (Finance) was asked to produce copies of issue slips and / or other documents in support of their contention that the material had been issued for production directly. However, in his statement dtd. 31.1.11, Shri Bhadkamkar, submitted that they did not have any documentary evidence to substantiate the said claim. Here I would like to rely upon the provisions of Rule 9(5) of CCR, 04, which in unequivocal terms has laid down that the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit. It is undisputed that the shortages have been detected by their own statutory auditors and they are reflected in their books of account. assessee are trying to deviate from the main issue by introducing a concept of book shortages and physical shortages and thus trying to demonstrate that the duty liability worked on the basis of book shortages is not tenable in law. In fact during the course of above demonstration the assessee have also gone one step ahead to accuse their own statutory auditors of not appreciating the fact that the 'figures booked in 702 account cannot be attribute....
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....d in WIP but to inputs 'before being put to use'. Here I would like to point out that the assessee have misinterpreted the wordings of the Rule in as much as it speaks about Inputs', or 'Capital goods before being put to use'. The words 'before being put to use' are restricted to the Capital goods only because separate provisions to deal with capital goods 'put to use' exist in the scheme of CCR, 04, by virtue of 2nd proviso to Rule 3(5) and Rule 3(5A) However, as regards Inputs are concerned they can be categorised as Inputs as such, Inputs issued for process & contained in WIP and inputs contained in the finished products, which become obsolete or non-saleable. It is only to clarify this issue that the Board has issued clarification under CBEC Circular No.907/27/2009-CX dtd.7.12.09, which has been discussed above. Thus the assessee's argument on this count is not sustainable. Accordingly, I hold that reason of BOM error being put forth by the assessee to justify the written off shortages is nothing but a theoretical argument, unsubstantiated by any concrete proof, which does not have the force to disapprove the written off shortages in thei....
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....ithout any such documentary proof, other documents evidencing only the purchases are not conclusive enough to prove its consumption. Here I would like to again point out that the Furnace Oil, appeared in the BOM for the first three quarters of 2007-08 and hence its consumption was recorded in the SAP. However, during the last quarter of the year this item was not included in the BOM and therefore its consumption was not recorded in the SAP was resultantly booked as shortage. This inclusion and exclusion of the material from the BOM itself casts a shadow of doubt on the entire inventory management of the assessee and I am unable to accept this line of argument put forth by the assessee. iv. Even in the cases where they have reversed the cenvat credit the assessee have not admitted that these are physical shortages but they are only book shortages. However, in the absence of any proof to that effect I am unable to subscribe to the assessee's argument. Thus I hold that the assessee is liable to reverse the cenvat credit/ pay C.Ex. duty, as the case may be, in the below mentioned cases- • Tools & Spares valued at Rs. 5,42,520/- involving duty of Rs. 89407/- â....
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..... The language of the Rule is plain and unambiguous. If the assessee claims entitlement to Cenvat Credit, it is the burden of proof upon the assessee to prove the admissibility of the cenvat credit. In the matter at hands and in the facts and circumstances of the case the only manner in which the assessee could have justified the cenvat credit claim was by showing through the Books of account or by any other piece of evidence that the inputs which were short as per Audit Report and were not utilized in the manufacture of final product...... We do not think that except reproduction of Rule 7(4) of CCR, 02, (now Rule 9(5) of CCR, 04), any other material is required to record a finding in favour of the Department that it is the burden of proof of assessee to justify the cenvat credit availed........ The facts of this case are similar and the assessee could have justified consumption of shortage material by producing evidence by way of internal slips or other records. However, they failed to do so and therefore I am not inclined to accept their line of argument. ii. Pooja Forge Ltd. Vs. CCE, Faridabad. -2006(196) ELT 18 (Tri. Del.) - is not applicable to the ....
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....ount, or * written off in their books of accounts It was only when the Department detected the delinquency of the assessee that they partly admitted their mistake and reversed the wrongly taken credit in order to mitigate the penal consequences. Had the delinquency not been detected by the Deptt., the assessee would have unduly benefited to a great extent. I also find that the assessee belongs to the organized sector and is well aware of their rights and obligations under the various tax statutes. They are working under self assessment scheme and should have been more vigilant about their tax practices. Therefore I am inclined to hold that the proviso to Section 11A of CEA, 1944, is rightly invoked in this case for demanding the duty for the extended period. I would like to rely upon the decision in the case of Bombay Dyeing & Mfg. Co. Pte. Ltd. Vs. CCE, Mumbai - 1999 (113) ELT 331 (Tri.. MUM] wherein it is held that - 'Where the assessee is in such knowledge and where the department have no knowledge of the situation, the Deptt. can allege suppression of facts ' In this case it cannot be disputed that the assessee was having knowledge of the....
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.... this context the observations of the Hon'ble Supreme Court in the case of Gujarat Travancore Agency, Cochin Vs. C.I.T. -1989 (42) ELT 350 (SC) are relevant. In this case it was held that - ............. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion there is nothing in Section 271(1)(a) (of the I.T. Act) which requires that mens rea must be proved before penalty can be levied under that provision' Further, the Mumbai High Court in the case of Malaysian Airlines Vs. UOI 2010 (262) ELT 192 (Bom.) has, inter alia, held that "Para 52. - ..It is well settled that when the consequences of the failure to comply with the prescribed requirement is provided by the statute itself, there can be no manner of doubt that such statutory requirement must be interpreted as mandatory." 52. In view of the above rulings of the Apex Court and High Court and in view of the circumstances as discussed above, I hold that the penalty under Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC of Cen....
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....e tax demanded, cannot challenge either the liability of Service tax and interest or penalty alone and the matter has to be treated as closed. No doubt, there is an instruction issued by the Board that once the assessee pays the Service tax and interest and intimates the department of the same on the basis of assessment of tax liability of the Central Excise Officer no show cause notice for differential amount of Service tax or interest can be demanded after one year except where there is a case for invoking suppression of facts, misdeclaration, fraud, etc. The Board has taken a view and has advised the field formations in such cases where there is no suppression of facts, misdeclaration, etc. show cause notice should not be issued and subsequently provisions were amended to specifically provide that no further proceedings will be initiated against the assessee. Further, there is no law laid down anywhere that the matter has to be considered as settled when an assessee pays the tax demanded with interest and penalty in accordance with law. It is only provided in the case of Settlement Commission where the Settlement Commission decides the issue and amounts as per the Settlement Com....
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.... which they failed to do so. Therefore, in these circumstances, the appellant is rightly entitled for refund of the amount of Cenvat credit, interest and penalty paid by them. Accordingly, I set aside the impugned order and allow the appeal. The adjudicating authority shall process the refund in accordance with law. In view of the decisions as above we are of the view that the appeal in present case is maintainable even if the appellants had paid the amounts demanded along with interest and 25% of penalty imposed on them. 4.5 In the appeal memo filed by the appellant, in response to point at Sl No 8, Appellant have recorded "No. The appeal relates to denial of cenvat credit in respect of raw materials contained in the finished goods and raw materials contained in the finished goods and raw materials , the value of which was adjusted in the books of accounts as well as demand of excise duty in respect of finished goods, the value of which was adjusted in the books of accounts." From the above in appeal memo it is quite evident that the challenge in appeal is limited only to the denial of cenvat credit in respect of raw materials contained in the finished goods and raw mater....
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.... godown as there was no place to install this equipment in the existing plant, while the appellants continued exploring alternate options to install the paint line. The said paint line supplied by M/s Intech is thus very much in usable condition. B.5 The appellants are still in the process of identifying a suitable land to consolidate the operations either in Pirangut or any other location of Pune and start the painting operations on priority by using the existing equipment. B.6 The appellants submit that, in view of the aforesaid facts, they have not been able to put the capital goods required for use in the paint booth in operation till date. Accordingly, the appellants have reversed the cenvat credit of Rs. 21,91,785/- availed on such capital goods, with interest on the same. B.7 In any event, the appellants will be entitled to take cenvat credit on the capital goods required for use in the paint booth once it is installed in the factory and put for use in the manufacture of final product, in terms of Rule 3(1) of Cenvat Credit Rules. K.3 Also, in respect of the credit availed on capital goods procured for setting up of paint booth, insulation....
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....aid the duty under clause (b) of sub-section (1), shall inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under clause (a) of that sub-section in respect of the duty so paid or any penalty leviable under the provisions of this Act or the rules made thereunder." Thus the submission of the appellant, challenging the penalty imposed under needs to be accepted, and appeal in respect of this demand allowed to the extent of setting aside the penalty imposed. 4.9 In respect of the demand made on the insulation material without physically receiving the same in their factory premises appellants have in the ground of appeals, recorded as follows- Cenvat credit availed on insulation material C.1 The appellants availed cenvat credit on insulation material, shown to have been received from their sub-contractor- M/s. Singh & Singh, Jamshedpur. The said insulation material was directly sent to their vendor at Jamshedpur. C.2 The appellants had cleared the manufactured goods to M/s. Singh & Sons on payment of excise duty and M/s. Singh & Sons had availed cenvat credit on the same. The insul....
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....les, 2000 reads as follows: 10A. Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then,- (i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer; (ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are .to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about ....
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....ttedly, the input in question were not received by the appellants and not used in the manufacture of final product by them. Therefore, the credit is not admissible to the appellants. He placed reliance on the judgment of Geno Pharmaceuticals Ltd. 2015 (37) STR 136. 5. On careful consideration made by both sides, I find that the fact is not under dispute that the input in respect of which the job worker raised the sale invoice in the name of the appellants were used by the job worker in the manufacture of goods on behalf of the appellants. Therefore the ownership of the input remains with the appellants and the same was used for their own product but at the premise of the job worker. The processed goods at the job workers end were being cleared on payment of duty by the appellants by raising sale invoices, therefore the inputs on which excise duty was paid was used in their manufacturing process at the job workers end is on behalf of the appellants only. Therefore, the cenvat credit on the inputs even though not received by the appellants is admissible for the reason that the same was admittedly used by the job worker in the job work goods of the appellants only. The identi....
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....March, 1986, published in the Gazette of India vide number G.S.R. 547(E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004." From the above provisions, it can be seen that the CENVAT Credit is allowed not only on the input received in the factory of the manufacturer of the final product but also the input used in the manufacture of intermediate product by a job-worker availing the benefit of exemption under Notification No. 214/86-CE dated 25.3.1986. In view of this specific provision, in respect of the inputs used in the premises of the job-worker, the CENVAT Credit is admissible. As per the judgment relied upon by the appellant particularly in their own case, which is on the identical issue, the CENVAT Credit availed by them is in order and the same is clearly admissible." Vijayashree Instaprint Machinery [2005 (190) ELT 27 (T)] 2. After examining the records and hearings both sides, I find that the appellant is questioning the reliance placed by the lower appellate authority on certain decisions of the Tribunal. I find that the threa....
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....05-SM. Branch dated 20-7-2005 in Appeal No. E/1174/2004-NB/SM. It is the contention of the learned Counsel that the issue raised in the present appeal is identical to the one decided in that order. The appellant has also relied upon the decision of the Tribunal in the case of Commissioner of Central Excise, Pondicherry v. Vijayashree Instaprint Machinery, reported in 2005 (190) E.L.T. 27 (Tri.-Chennai) in support of his contention. 3. We have perused the record and heard learned Senior Departmental Representative also. In identical case, this Tribunal has already held in favour of the manufacturer under the aforesaid orders. One of those orders is in the appellants' own case. We are in agreement with the view taken in those orders. Ballarpur Industries Ltd. 2017 (7) TMI 888 - CESTAT MUMBAI] "3. The subject issue here is - 'whether the appellant is entitled to CENVAT Credit for the inputs which have been purchased initially by the job-worker and utilized within the job-worker's premises for the product of the appellant and later sold to the appellant?' In principle the matter is covered by the Tribunal's decisions in the cases of Flex Indus....
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....ound short and not used by the appellants but written off in the books of accounts. Hence, credit taken should be reversed under Rule 3(5B). FG has been found short and removed without issuance of invoice and hence, liable to excise duty. (i) Rule 3(5B) applies where inputs are available in the factory but it's value is written off in books. When the department alleged that there is shortage of inputs or WIP, it would mean that goods are not available in factory hence, Rule 3(5B) will not apply. (ii) Rule 3(5B) is not applicable on WIP and Finished goods. (iii) Audit report in addition to shortage also reports excess goods. This itself shows that discrepancy is theoretical/ notional and not actual. Further, no adjustment for excess shortage given while raising demand. Detailed submissions - Kindly refer. (iv) Demand merely on the basis of theoretical/ notional shortage without any evidence of clandestine removal of goods, is not maintainable. Damaged/ rejected/ Non-saleable stock 23,37,519 [Demand under Rule 3(5)] SCN The appellants are not able to account for stock of WIP valued at Rs. 1,41,83,975/- and the same was adjusted against closing sto....
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....as a corrective measure so that the books of account can reflect the true and fair view of stock of inputs/ WIP and finished goods. The department proceeded on the assumption that the shortage in books stock due to accounting errors is an actual shortage of stock without conducting any physical stocktaking to show that the shortages reflected in the books were actually the physical shortages too. 4.17 Appellants also placed on record the Chartered Engineers' Report dated 11.6.2012, confirmed by the Chartered Accountants report dated 13.6.2012, which shows the reconciliation between the theoretical consumption and actual consumption of raw material required for manufacture of finished goods. From these reports it is evident that there would not be any shortage against which the demand has been made. The entire demand is based on the accounts maintained by the appellant on various software (SAP). As per the para 7, of the Show Cause Notice, Schedule No 18, forming part of the Balance sheet of appellant as on 31.03.2008 at sub para 7 contained reference to damaged/ rejected/ non-saleable items found during the stock taking in the company. The said sub-para is reproduced belo....
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....sidered for valuation. The impact, if any, of discrepancies that may have been identified on such verification on the loss for the year cannot be ascertained." • (ii) (c) of the "Annexure Referred to in paragraph 3 of the Auditors Report of even date to the members of Automotive Composite Systems (International) Limited on the accounts for the year ended 31st March 2008" has observed as follows: "During the year the company has implemented SAP system. In our opinion the inventory records are not properly maintained consequentially material discrepancies aggregating to Rs. 128,760 ('000) net shortages (Gross Excesses - Rs 23,538 ('000) Gross Shortages - Rs 152,298 ('000) were noticed between physical stock and inventory records which have been properly dealt with in the books of accounts." The above observation made by the by the statutory auditors clearly show that these shortages and excesses were clearly on the basis of faulty accounting policies of the company and did not establish the clandestine clearance of these goods. 4.18 Tribunal has consistently observed against the demand made in respect of the accounting shortages noticed, in case where thes....
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....G-1 and the physical stock available on a particular day. It is admitted that a large number of components are being manufactured by the appellants and they have a special system of accounting called the SAP system. When the appellants find discrepancies in the physical stock and what is shown in the SAP system, we have to infer that errors have kept in the accounting of stock in the SAP system. In other words, SAP system accounting has not reflected the actual picture in view of the error found out by the appellants themselves at the end of each year. They also have their system of correction under system code Nos. 701 & 702 for adjustment of excesses and shortages. The above facts cannot lead us to a conclusion that shortages of finished goods have arisen on account of their removal without payment of duty and without accounting. The DGCEI officers themselves had not conducted any physical verification of stock of finished goods with reference to the RG-1 stock. When thousands of components are manufactured, there is every possibility of errors creeping in. After going through the Show Cause Notice, we come to a conclusion that even the SAP system of accounting is not hundred per....
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....ual physical weighment of the entire stock, the allegation of shortage of stock and consequent illicit removal of finished goods cannot be sustained. The method of stock taking adopted by the authorities at best can lead to a suspicion of shortage but cannot be a substitute for the proof of shortage." D. Affirming the decision in case of Maruti Udyog Ltd. [2004 (173) ELT 382 (T)] Hon'ble Punjab and Haryana High Court has at [2010 (262) ELT 180 (P&H)] held:- 15. When the facts of the present appeals are examined in the light of categorical findings recorded by the Tribunal, it becomes evident that the view taken by the Tribunal does not suffer from any illegality. The arguments raised by the Revenue are thus liable to be rejected. The Tribunal has recorded categoric findings that in the establishment of the dealer, full reconciliation of transactions concerning use of inputs was not possible. The shortages and excesses had been found to be normal. It was further found that that the establishment of the dealer is huge and complex which involved a complicated accounting problem. It cannot be controlled manually and they have put in place sophisticated computer based ....
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....as been adopted for finished goods also. We find that the shortages and excesses found during physical stock verification which remained unreconciled are within the tolerance limit keeping in view the thousands of types of raw material and finished goods involved in the accounting by the assessee. Such view has been taken by this Tribunal in the cases of Maruti Udyog Ltd. v. CCE, Delhi-III reported in 2004 (173) E.L.T. 382 (Tri. - Del.) and in Widia India Ltd. v. CCE, Bangalore reported in 2007 (207) E.L.T. 562 (Tri. - Bang.) later affirmed by the Hon'ble High Court of Karnataka in 2010 (255) E.L.T. 36 (Kar.). Another important point to be noted here is that while the whole discrepancy in physical stock has come to light only as per the stock taking conducted by the assessee, there is no allegation or evidence to the effect that the shortages/excesses are not attributable to accounting errors or complexities but are due to unaccounted clearances finished goods and consumption of raw material. In the absence of any such corroboration the assessee's plea on the non-sustainability of order reversing credit or demanding duty has strong force and is to be admitted. Accordingly, we find ....
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....graph No. 6 of his judgment that it was a case of alleged shortage of some items of inputs and excess of some other items of inputs, as revealed by the Cost Audit Report of the appellant for the period 2002-2003. On going through the order of the Commissioner (Appeals), Cost Audit Report does not seem to be before the Authority, but the Authority seems to have relied upon a letter dated 17-10-2005 produced by the assessee at the time personal hearing which was in fact a list submitted by the assessee of the items found excess and those found short. We do not think that except reproduction of Rule 7(4) of the Cenvat Credit Rules, 2002, any other material is required to record a finding in favour of the Department that it is the burden of proof of the assessee to "justify the Cenvat credit availed. It is necessary to refer the orders of the Joint Commissioner as also the Commissioner (Appeals) because they have applied Rule 7(4) in correct perspective. In view of failure on the part of the assessee to account for utilization of the inputs which were short and upon which Cenvat credit was claimed, but were not accounted in the Audit Report as utilized in the producti....
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....unting system, there are bound to be some problems and some errors. With due respect, the Tribunal did not consider the other side of the coin. The Department does not function as a supervisor to ensure that every input is used or not used in the manufacture of final product is properly recorded in the accounts and the Department wholly relies upon the Books of Accounts maintained by the assessee for the purpose of finding out as to whether correct Cenvat credit is claimed and whether correct duty is paid by reversing the Cenvat credit to which they were not entitled. Ultimately, the amount recovered has to go to the Public Exchequer. Without accusing the Department in the present case, we cannot avoid considering a probability that the Books of Accounts being constantly under the control of the assessee, it is easier for assessee to play mischief, if assessee so desires." The Appeal filed by the revenue against the decision of tribunal in case of Maruti Udyog, referred above has been dismissed by the Hon'ble Supreme Court [2015 (319) ELT 549 (SC)], holding as follows: "We find from the reading of the impugned order of the Tribunal that the Tribunal has discussed in det....
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....pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods : Provided that if the said input or capital goods is subsequently used in the manufacture of final products, the manufacturer shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules." 4.21 In case of General Motors Pvt Ltd [Final Order No A/86151-86153/2022 dated 01.11.2022] we have observed a follows: "There is complete legislative history to explain the insertion of the rule 3 (5B). Prior to the insertion of the said rule, CBEC has is 1995 issued Circular No 101/12/96-CS dated 22.2.1995 as a direction to plug the revenue leakage in situations where assessee was writing off the material in the books of accounts, but not reversing the MODVAT credit availed on those input materials. Subsequently, the CBEC issued circular no. 615/36/2002-X dated 16.7 2002 clarifying that in situation wherein inputs had been written off, the instruction mentioned in circular dated 22.2.1995 shall apply i.e. Credit availed must be paid back. Rule 3(5B) was introduced w.e.f. 11.5.2007. The intention ....
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.... final product manufactured on the very day that it becomes available." This decision in an unambiguous manner provides that once the credit has been taken by the appellant then the same is available to him unless the manufacturer himself chooses not to use the raw material in its excisable product. Thus it is the option of the manufacturer to declare that inputs on which he has taken the credit have become unusable or have been lost and are not available for the purpose of manufacture of finished goods which are cleared on the payment of duty. The philosophy of this observation of Hon'ble Apex Court, is what has been formally stated in Rule 3 (5B) of the CENVAT Credit Rules, 2004." 4.22 Interpreting the said rule Tribunal has is case of Tata Motors Ltd. [2021 (11) TMI 830 - CESTAT Mumbai] held as follows: 6. We find that in the facts and circumstances of the present case the shortages and excesses if any found are theoretical due to huge quantity of inputs handling. It is not a case of the Department that the appellant have ever removed any Cenvat inputs without payment of duty from their factory. Therefore, even though there is any shortage or excess, the inp....
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....ot invokable in the facts of the present case and Rule 3(5B) ibid has no application in the present case. Nor Rule 11 is applicable as the said rule will come into play only when the Cenvat Credit has been taken or utilised wrongly whereas in the present matter the Cenvat credit was rightly taken on eligible inputs upon their receipt. Learned Authorised Representative on the other hand reiterated the findings recorded in the impugned order and prayed for dismissal of Appeal. According to learned Authorised Representative the appellants are liable to pay an amount equivalent to Cenvat Credit taken on inputs allegedly written off in terms of Rule 3(5B) ibid alongwith interest and penalty, as it categorically states that an amount equivalent to the Cenvat credit taken on input written off is payable by the assessee. He denied the contention of learned counsel that those parts which were not available during physical stock verification at its specified storage rack were subsequently found in another storage rack. 4. Rule 3(5B) ibid specifically provides that If the value of any input or capital goods before being put to use, on which CENVAT credit has been taken is written of ....
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....o be available in the factory and only a book entry is to be made to write off the value of the said goods. We are also not oblivious of the fact that on a similar set of facts in appellants own case this Tribunal in the matter of M/s. Tata Motors Ltd. Vs. CCE, Pune-1; reported in 2016-TIOL-1027-CESTAT-MUM while relying upon the law laid down by the Hon'ble Supreme Court in the matter of Maruti Suzuki India Ltd.; 2015(319) ELT 549 (SC) decided the issue in favour of the Appellants. Similarly in another matter of Appellants i.e. Appeal No. E/172/2009 in the matter of M/s. Tata Motors Ltd. Vs. CCE&ST, Jamshedpur, a coordinate Bench of the Tribunal vide Order dated 11.1.2019 decided the issue in favour of the appellants therein and held that the demand is not sustainable and there is no evidence on record that the inputs on which the Credit was taken, were not received in the factory or removed as such from the factory. 6. While following the decisions as cited above and in view of the facts of this case and also in view of the discussions made hereinabove, we are inclined to set aside the impugned order and accordingly the appeal filed by the appellants is allowed with conse....
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.... in case of Maruti Suzuki India Ltd. (supra), I am of the view that Cenvat credit cannot be disallowed in the facts and circumstances of the present case. The impugned order is set aside, appeal is allowed." 4.23 We also note that an explanation as follows was inserted in Rule 3 (5B) vide Notification No 03/2013-CE 9NT) dated 01.03.2013, providing for recovery mechanism in terms of the said rule. "Explanation. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken and utilized." The period involved in the present case is prior to the date of insertion of the said explanation. In case of Steel Authority of India Ltd. [2020 (3) TMI 147 - CESTAT Chennai] following has been held relying on the judicial precedence: "7. It is for the department to prove the allegations raised in the SCN. Even from the SCN or the documents placed before me, there is no evidence to show that the appellants have written off the full value of capital goods. There is only partial writing off to the e....
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....nghavi Engineering Vs CCE Hyderabad - 2013 (297) ELT 277 (Tri.- Bang.) similar view as discussed wherein requirement to reverse the credit when the value has been partially written off would take effect only after 1.3.2011 was noted. "2. In view of the cited provisions, it has to be held that, prior to 1-3-2011, a manufacturer of final product who availed Cenvat credit on inputs was not required to reverse any part of that credit on the ground of a part of the value of the inputs being written off the books of account. Only cases of writing off the full value of the inputs on which Cenvat credit had been availed called for reversal of the credit. The present one is not such a case. It is also pertinent to note that the Department has no case that the amendment dated 1-3-2011 has retrospective effect." Similar view as taken in M/s. Kirloskar Ferrous Industries Ltd.(supra) and relevant portion of the order is reproduced as under : "5. After considering the submission of both the parties and perusal of the material on record, I find that from the show cause notice itself, it is clear that there was no provision for full write off of inputs and capital goods.....
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....tock cannot by itself construed that the said goods were removed clandestinely by the assessee. The department has to adduce positive evidences of such removal of goods clandestinely demonstrating the intent to evade payment of duty." B. Rashtriya Ispat Nigam Ltd. Vs. CCE - 2008 (9) TMI 663 "4... Therefore, in the very nature of accounting, there is bound to be difference. Unless it is shown that the appellants had cleared the goods without payment of duty in a clandestine manner, or in other words, unless there is evidence to show that there is clandestine clearance, this type of demand of duty is not sustainable. 6. On a very careful consideration of the issue, we find that the case-laws relied on by the Revenue are the cases decided by a Single Member Bench, whereas the Division Bench's decisions are in favour of the department. In any case, the longer period is clearly not invocable and since different basis are adopted for estimate the production, consumption, clearance, stock taking etc. the discrepancy between the stock taking figures and the production figures which are accounted should not immediately lead us to the conclusion that the differ....
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....ould be required to reverse the credit on the inputs used, if duty has been remitted on finished goods. 3. As regard writing off work in progress (WIP), it is stated that if the WIP has reached the stage, when it can be considered as manufactured goods, in that case, the same treatment as applicable to finished goods, discussed in para 2 above would apply. However, if the activity carried out on the WIP goods cannot be considered as amounting to manufacture, in that case, the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable." After taking note of this clarification in Nectar Life sciences Ltd [2013 (293) ELT 247 (T)] following has been held: "6. The above pleas of the appellant were not accepted by the Commissioner who by referring to the provisions of Rule 3(5B) and 3(5C) as also to the Board's Circular No. 907/27/2009-CX., dated 7-12-2009, confirmed the demand of duty as proposed in the notice along with confirmation of interest and imposition of penalty of identical amount under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. 13. We ....
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....n the provisional Rule 3(5C) of the Cenvat Credit Rules, 2004. As the provisionally Rule 3(5C) of Cenvat Credit Rules, 2004 are not applicable. In this case, therefore, he submits that the impugned order may be set aside and appeal be allowed. 5. On the other hand, the ld. AR reiterated the finding of the impugned order and submits that the appellant have written off the credit pertains to work in progress in that way provisions of Rule 3(5B) are invoked, consequently, the appellant are not entitled to avail Cenvat credit. 6. Heard the parties considered the submissions. 7. In this case the appellant has filed the claim refund on duty paid by them on account of reversal of Cenvat credit availed on inputs which were used in work in progress/semi-finished goods. Admittedly, the inputs on which Cenvat credit was availed by the appellant were used in manufacture of final goods. Therefore, the Cenvat credit cannot be denied to the appellant, moreover, the work in progress lost in fire. Therefore, appellant is not entitled for claim of remission of duty but the appellant cannot be asked to reverse Cenvat credit. It is a fact on record that the appellant has not....
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....Ltd., v. CCE, Allahabad, 2003 (161) E.L.T. 346 (T), wherein also the demand was raised on the basis of the information appearing in the balance sheet of the assessee/company after invoking the extended period of limitation. But it was ruled that extended period could not be invoked as the balance sheets were publically available document and the demand was held to be time-barred against the assessee. The case of the appellants also stands squarely covered by this ratio of the law laid down in that case." D. Jindal Vijaynagar Steel Ltd. [2005 (192) ELT 415] "6. Moreover, the fact of giving interest free advance to M/s. JVSL is mentioned in the Balance Sheet of the appellant company. In view of the findings of the adjudicating authority and the ratio of CEGAT's decision in Hindalco Industries Ltd. v. CCE, Allahabad - 2003 (161) E.L.T. 346 (Tri.-Del.), wherein it is held that demand raised on the basis of information appearing in Balance Sheet is not sustainable invoking the extended period as Balance Sheet of companies is a publicly available document, the longer period cannot be invoked in this case. On this ground alone, the entire demand is liable to be set aside....
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....the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC. 19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. 23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides." ....