2004 (12) TMI 109 - AT - Central Excise

Summary

Issues:
Availability of Modvat credit for loss of inputs due to evaporation of moisture.

Analysis:
The issue before the Appellate Tribunal was whether Modvat credit would be available for the loss of inputs due to evaporation of moisture. The respondents were engaged in manufacturing Cement and availing Modvat credit on various inputs, including Phospho Gypsum. The revenue contended that duty paid on the loss of weight due to evaporation could not be allowed as Modvat credit since the weight attributable to the loss was not actually used in the final products. The Tribunal considered previous decisions and arguments presented by both parties.

The revenue argued that as per Rule 57A of Central Excise Rules, only the quantity of input actually used in manufacturing final products is eligible for credit. They relied on a previous Tribunal decision regarding inadmissibility of Modvat on lost quantity of inputs. However, the respondents did not appear, and the Tribunal proceeded with the case.

After examining the facts and previous decisions, the Tribunal found that the respondents had paid for the entire quantity of duty-paid Phospho Gypsum, inclusive of moisture content. Some negligible loss of moisture occurred during storage due to atmospheric conditions, but the entire moisture was not evaporated. The Assistant Commissioner accepted the appellant's explanation and dropped the proceedings. The Commissioner (Appeals) upheld this decision, leading to the present appeal.

The Commissioner (Appeals) detailed the reasoning behind rejecting the revenue's appeal, emphasizing that the loss of moisture was a process loss occurring during manufacturing. The Tribunal concurred with the Assistant Commissioner's reasoning that the credit should not be denied for moisture loss, as the total quantity of inputs and duty paid should be considered for Modvat credit eligibility.

The Tribunal cited a previous decision where Modvat credit was allowed for the weight of moisture lost in transit from the supplier to the assessee's premises. They also noted that previous orders in the respondent's favor, which were not challenged by the revenue, had attained finality. The Tribunal distinguished a previous case involving loss of molasses, stating that in the current case, it was the loss of moisture content, not the inputs themselves, making the previous decision inapplicable.

Ultimately, the Tribunal ruled in favor of the assessee, stating that denial of credit should only be considered when the inputs themselves are lost prior to use. The appeal papers were to be sent to the original bench for further proceedings.