2009 (11) TMI 177 - AT - Central Excise

Cenvat Credit- whether Cenvat Credit could be denied to the assessee on the ground that the weight of the input recorded on receipt in the premises of the manufacturer of the final products showed a shortage compared to the weight recorded in the relevant invoice? Held that- tolerance in respect of hygroscopic volatile and such other cargo have also to be allowed as per industry norms excluding however unreasonable and exorbitant claims. Similarly minor variations arising due to weighment by different machine will also have to be ignored if such variations are within tolerance limit. Therefore appeal was to be returned to the concerned Division Bench for decision on merit.

Summary

Issues Involved:
1. Whether Cenvat credit can be denied due to a shortage of inputs recorded on receipt compared to the weight recorded in the relevant invoice.

Detailed Analysis:

1. Conflicting Tribunal Decisions:
The initial issue arose from conflicting decisions by different benches of the Tribunal regarding the eligibility of Cenvat credit when there is a discrepancy between the weight of inputs received and the weight mentioned in the invoices. Some decisions denied credit for shortages (e.g., Bombay Dyeing & Mfg. Co. Pvt. Ltd. and Mukand Ltd.), while others allowed credit despite minor discrepancies (e.g., Neera Enterprises and Sipta Coated Steel Ltd.).

2. Reference to Larger Bench:
Due to these conflicting decisions, the Single Member Bench referred the matter to a Division Bench, which subsequently referred it to a larger Bench to resolve the issue definitively.

3. Key Precedents:
The larger Bench reviewed several key precedents:
- Neera Enterprises: Allowed credit for minor discrepancies (2%) due to different scales.
- Bombay Dyeing & Mfg. Co. Pvt. Ltd.: Denied credit if the quantity received was less than indicated in the document.
- Mukand Ltd.: Denied credit for inputs not physically received in the factory.
- Gharda Chemicals Ltd.: Allowed credit within a permissible error margin (1%) due to weighbridge fluctuations.

4. Department's Argument:
The Department argued that Rule 3(1) of the Cenvat Credit Rules allows credit only for inputs or capital goods actually received in the factory. They contended that for non-hygroscopic, non-volatile goods like re-rollable steel items, there should be no natural loss during transit, and thus, any discrepancy should disallow credit.

5. Consideration of Transit Loss:
The Tribunal acknowledged that some goods might suffer transit loss due to their hygroscopic or volatile nature. They also noted that discrepancies might arise due to different weighing scales at dispatch and receipt points.

6. High Court Decision:
The only High Court decision cited (Bhilwara Spinners) supported allowing credit for transit loss due to evaporation, provided there was no diversion of goods and the entire consignment was used as input in manufacturing the end product.

7. Factors for Decision:
The Tribunal concluded that each case should be decided on its merits, considering factors such as:
- Whether the goods were diverted en-route.
- The nature of the goods (hygroscopic or volatile).
- Whether all packages were received and accounted for.
- Discrepancies due to different weighing scales within tolerance limits.
- Whether compensation for shortages was claimed from suppliers, transporters, or insurers.

Conclusion:
The Tribunal decided that no rigid standard could be applied universally. Instead, decisions should be based on the specific circumstances of each case, considering the factors mentioned above. The reference was answered in these terms, and the appeals were returned to the concerned Division Bench for a decision on merit.

Pronouncement:
The judgment was pronounced in open court on 12-11-2009.