CENVAT - Inputs stored outside factory without permission - instead of recording finding that Inputs were used in manufacture and credit was availed on inputs, Commr(A) while allowing credit made observation for which there is no reference to any material - CESTAT order upheld: HC
By TIOL News Service
ALLAHABAD, DEC 04, 2013: THE appellant is engaged in the manufacture of excisable goods falling under Chapter 48 of the CETA 1985.
The issue inter alia concerns denial of CENVAT credit of Rs.30,05,054/- in respect of inputs, which were stored outside factory premises without obtaining prior permission of the Commissioner, Central Excise in terms of CBEC Circular dated 1.5.1996.
Incidentally, the adjudicating authority had denied this credit but the Commissioner (A) allowed the same by observing thus -
++ that in the SCN it was alleged that since the goods were removed at some stage outside the factory premises, the appellants are guilty of having cleared the goods as such without payment of duty and, therefore, they became liable for payment of duty on all the inputs that were removed from the factory in violation of the Board's Circular of storage of goods outside the factory premises. The Commissioner (Appeals) held that what was alleged is that inputs were never used in manufacturing process; MODVAT credit was availed even prior to the receipt of the inputs in the factory. In the SCN it was not disputed that these inputs are eligible for availing MODVAT credit and that assessee is in possession of the appropriate duty paying documents on the basis of which credit can be allowed. The charge that the assessee has been storing inputs outside the factory premises without observing the requirements laid down under the Board's circular were not made. The appellant was thus entitled to the credit, as in such case the appellants have committed only an irregularity. In view of the fact that there was no allegations that the inputs were not used in the manufacturing process or that the appropriate duty paying documents on the basis of which such credit has been taken are not available, the MODVAT credit of Rs.30,05,054/- was allowed.
Therefore, the Revenue filed an appeal before the CESTAT.
The CESTAT held that admittedly the permission as required under the Circular was not taken by the company;the credit on inputs stored outside the factory premise could be taken only when such storage was made with the prior permission of the Commissioner, Central Excise, and after the goods were received inside the factory for being put to use in the manufacture of final product. Since the credit was admittedly taken, when the inputs were still lying outside the factory despite the undertaking given by the assessee in its letter dated 10.4.2001 to the Deputy Commissioner Central Excise that they will take credit only when the total consignment covered under a single invoice is received in the factory, there was no compliance with the procedure in the relevant period. Accordingly, the revenue appeal was allowed in relation to the credit of Rs.30,05,054/-.
Resultantly, the assessee has filed an appeal before the High Court.
It is submitted that on 10 th April, 2001, the appellant had informed the Deputy Commissioner, CE that since there is shortage of space in the registered unit, the raw materials i.e. kraft paper is being stored in the premise situated at A-21, Sector-8 Noida and that the same would be received them on pre-authenticated challans as per Boards' Circular dated 1.5.1996, and would follow procedure laid down under Bombay, Calcutta, T-N No.46/96 dated 21.8.1996. It was also stated that in addition to the maintenance of the registers at both the places, the assessee will take credit only when the total consignment covered under the single invoice is received in the factory.
In response to the aforesaid letter, the Deputy Commissioner by his letter dated 15.3.2002 informed the assessee that he was not competent to consider the said intimation and that the application should be made to the CCE, Noida. Accordingly, the intimation letter was rejected and consequently the SCN was issued by the same authority on 8.4.2002 giving rise to the proceedings leading to the instant appeal.
The High Court observed -
++ We have examined the show cause notice and the findings recorded by the Commissioner (Appeals) and do not find any allegations or statement of facts that the Modvat able inputs stored outside the factory were brought within the factory and were used for manufacture of excisable goods.
++ The entire show cause notice is based on technical breach of failing to comply with the CVEC Circular dated 1.5.1996, which provides for seeking permission for storage of Modvat able goods outside the factory premise from the Jurisdictional Commissioner of Central Excise, in which case the permission will be granted treating the storage point as an extension of the factory premises. The circular seeks to protect the interest of revenue by providing suitable safeguards to prevent misuse of the facility. It further provides that the credit in such case will be taken in the books of accounts only when the entire inputs covered by invoice are received inside the factory for being put to use in production.
++ In the present case findings have been returned by all the Central Excise authorities that the required permission was not taken from the Jurisdictional Commissioner of Central Excise. The CESTAT observed that admittedly the credit was taken while the inputs were still lying outside the factory unauthorisedly despite undertaking given by the assessee in their letter dated 10.4.2001 submitted to the Deputy Commissioner of Central Excise that they will take credit only when the total consignment covered under single invoice is received in the factory. Having failed to take the permission of the Jurisdictional Commissioner of Central Excise for relaxation to store the inputs from the Jurisdictional Commissioner of Central Excise and further availing the credit against its own undertaking given by the party in its letter dated 10.4.2001, the appellant was not entitled to the input credit. There is no such statement of fact in the show cause notice, in the order of the order-in-original or the appellate authority that the inputs under single invoice were brought in the factory premises and were used in the manufacturing process before the credit was taken in the books of account. The Commissioner (Appeals) has observed; " what has not been alleged is that the inputs were never used in the manufacturing process or the credit was availed even prior to the receipt of the inputs in the factory. The CC report also does not dispute that these inputs are eligible for availing MODVAT credit and that assessee is in possession of the appropriate duty paying documents on the basis of which credit can be allowed." The observations are in negative and not of actual use and availing of credit in the books after manufacture of excisable goods.
++ The Commissioner (Appeals) has instead of recording a positive finding that the Inputs were used in manufacturing process and credit was availed after receipt of inputs in the factory, made a passing observation, for which there is no reference to any material on record. There is no statement of fact in the show cause notice nor the Order-in-original of any finding to that effect, which benefits the appellant.
After distinguishing the case laws cited by the appellant, the High Court held that it does not find that CESTAT committed any error of law in recording finding that the Commissioner (Appeals) had erred in law in allowing the credit to the assessee after holding that the appellant had not observed the procedure prescribed for relaxation to store inputs outside the factory premises.
In fine, the Central Excise appeal filed by the assessee was dismissed.
(See 2013-TIOL-973-HC-ALL-CX)
