By TIOL News Service

KOLKATA, NOV 30, 2015: ALLEGING that the appellant had availed inadmissible CENVAT credit, the CCE, Jamshedpur confirmed demands of Rs.8,65,408/- &Rs.1,08,88,453/- along with interest and penalties.

In appeal before the CESTAT, the appellant submitted that out of total demand of Rs.1,17,53,861/- an amount of Rs.8,65,408/- is demanded for the inputs found short during physical verification of stock which was reversed by the appellant, along with interest of Rs.2,76,476/- before the issue of SCN. And that the remaining credit of Rs.1,08,88,453/- is denied by the Adjudicating authority on the ground that certain inputs are scrapped during the manufacturing process and that the same are not used in or in relation to the manufacture of the finished goods.

The appellant submitted that they follow an internal audit procedure by which if inputs are found defective at the time of receipt or during quality check then such inputs are sent back to the vendors and equivalent credit taken is also reversed; that inputs after passing audit test are sent to the online assembly; that during online assembly of finished goods some of the parts/inputs are not picked up by the assembly line or get damaged; that the same has to be considered as scrap generated during the course of manufacture; that such inputs are cut into pieces & sold as scrap on payment of appropriate amount of Central Excise duty. It is further mentioned that such waste comes to only 0.28% to 0.49% of the total value of the inputs/parts.

Reliance is placed on the following decisions in support viz. Asahi India Safety Glass Ltd. 2004-TIOL-29-HC-DEL-CX affirmed 2015-TIOL-129-SC-CX; Geltec Ltd. 2011-TIOL-968-HC-KAR-CX; Monika Electronics Ltd. 2006-TIOL-1296-CESTAT-DEL & CBEC Circular F.No.B-4/7/200-TRUdt.03.04.2000.

The AR justified the order of the adjudicating authority.

Noting that the decision in Asahi India Safety Glass Ltd. (supra) cited by the appellant is relevant and is squarely applicable to the facts of the present appeal, the Bench observed that as held in the case of Monika Electronics Ltd. (supra) , CENVAT Credit on the inputs rejected on line, in the manufacturing process, cannot be denied.

The argument of the appellant that demand of Rs.1,08,88,453/- is time barred as they filed Rule-173B declaration of the waste & scrap of components and also included the same in their monthly returns filed with the department was accepted by the Bench and it is held that extended period of 5 years cannot be invoked with respect to demand of Rs.1,08,88,453/-.

The appeal filed by the appellant with respect to confirmation of demand of Rs.1,08,88,453/- was allowed on merits as well as on time bar.

In the matter of the demand of Rs.8,65,408/- being the CENVAT credit involved in inputs found short during stock taking, the Bench observed that this shortage was as a result of verification undertaken by the Audit of the appellant much before the same was detected by the Revenue and although the Appellant was aware of such shortages but still did not reverse the credit on these shortages and, therefore, the extended period will be applicable. Nonetheless, the Bench noted that the option of 25% reduced penalty u/s 11AC of CEA, 1944 was not extended to the appellant by the Adjudicating authority although the demand was paid by appellant along with interest before issue of SCN. The Tribunal extended the benefit of reduced penalty subject to the appellant paying 25% reduced penalty within 30 days from the receipt of the order. Consequently, since the penalty under Section 11ACwas upheld the other penalty of Rs.5,00,000/- imposed upon the appellant was set aside.

The appeal was partly allowed.

(See 2015-TIOL-2540-CESTAT-KOL)