By TIOL News Service

MUMBAI, FEB 21, 2018: CENVAT credit of Rs.7,06,000/-, attributable to inputs which, according to the appellant's trial balance, was adjusted as material usage variance and, hence, not used in manufacture of goods, was denied by the lower authorities.

In short, the demand sought to be recovered had been confirmed on the ground that the usage of inputs was in excess of that stipulated in the production norms.

The appellant is before the CESTAT and submits that the amount attributed as direct usage material variance in the trial balance for the relevant period pertains to the usage of the raw material in excess of the standard prescribed in a model of efficient operation.

Inasmuch as it is, in effect claimed that this variance represents an additional cost of production arising from inefficiency. Moreover, there is no allegation in the show cause notice that any of the inputs that were brought into the factory had ever been used for any purpose other than manufacture or were removed illicitly.

After considering the submissions made by both sides, the Single Member Bench observed thus –

+ Taxation laws cannot be extended beyond the objectives laid down in the statute.

+ The tax element here is manufacture and the inefficiency attributed to excessive usage of materials is perforce reflected in an enhanced assessable value on which appropriate duty liability has been discharged.

+ In accordance with the objectives of the scheme the CENVAT Credit Rules 2004 permit taking/availment of credit to the extent that duty/tax has been discharged on the goods/services that are received at the factory of manufacture. There is no dispute that the goods were received at the factory.

+ There is no provision under the CENVAT Credit Rules, 2004 for denial of availment of credit merely on the ground that the assessee has admittedly deployed inputs in excess of the ideal for achieving desired output level .

Concluding that the demand for recovery of the credit does not have the sanction of law, the impugned order was set aside and the appeal was allowed.