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2018 (2) TMI 284

Head Note / Extract:
CENVAT/MODVAT credit - manufacture of additives for lubricating oil - shortage of stock - The SCN were issued by the Commissioner of Central Excise, Chennai on the ground that during the course of verification of MODVAT/CENVAT credit accounts, and connected records, it was noticed by the Jurisdictional Range officer that the appellant was conducting physical stock taking of inputs on monthly basis and the quantity of inputs were found to be short and adjusted in the internal records, as consumption - demand of MODVAT/CENVAT credit taken on the inputs not used in the manufacture of final products during the period from January 2000 to March 2004, was issued u/r 13(2) of the CCR 2001 & 2002 and under erstwhile Rules 57 I(4), 57 AH(2) of CER, 1994 read with Section 11AC of the CEA, 1944.

Contention of the appellant is that the shortage and loss are due to evaporation, due to reduction of viscosity and volatile nature of the inputs also. While using the inputs for the manufacture of final products, storage tanks are heated to reduce the viscosity, so as to facilitate the flow of inputs in the pipelines - the demand made by the authorities was for the reason that the inputs were not utilized fully, in the manufacturing process and the percentage of loss was, from 5.56 to 5.58%.

Held that: - It is clear from the records that the appellant themselves have recorded such shortage of input, after the receipt of the inputs to their factory. While determining the shortage, it is clear from the records that the inputs found short, were not consumed, in the manufacturing process. When the inputs were not at all used in the process of manufacture, cenvat credit is not allowable.

If there was shortage of physical stock, due to evaporation while heating (or due to weighment methods), the appellant could have explained the same, in their reply to the SCN. But it is clear that the appellant has neither explained the same before the officials nor before the Tribunal - It is seen that for the input OLOA 200, there was highest shortage of 12.658 MT in the month of January 2002 and 5.244 MT, in the month of March 2000. Similarly, in the case of Glissopal 1000, the highest shortage of 13.510 MTs was noticed in the month of May 2000 and 10.453 Mts, in the month of January 2001. The inputs have high viscosity and not volatile in nature. Considering the fact that shortage of inputs has been accounted only for specific months, and not in a continuous manner, it is established that shortage of inputs, is not on account of mere difference in variation of weighment methodology, but the said quantity of inputs have not been used in the manufacture of final products, after the receipt of inputs to the appellant factory. The shortage noticed is not a negligible quantity and that the appellant themselves have stated that the shortage is 5.58%.

In the case of Bhuwalka Steel Industries Ltd., [2009 (11) TMI 177 - CESTAT, CHENNAI [LB]], the larger Bench of the Tribunal has clearly laid down that while complying the above tolerance limit for each entry is to be allowed, if there are any minor violations due to weighment method should be ignored, provided such violations are within the tolerance limit - Whereas, in the present case, the shortage is neither attributed due to volatile nature nor the percentage of shortage is negligible, as the appellant themselves have stated that the shortage is 5.58%. The appellant has failed to put forth any justifiable reason that the shortage was purely due to the difference in actual weighment, and mass-flow meter - It is a clear case of suppression of facts where the appellant has deliberately adjusted the shortage, as if it was used in the manufacture of final products, at the end of every month and created fresh opening balance at every month, without making reversal of credit on the shortage of inputs - the authorities below have rightly rejected the reasons given by the appellant for the loss/shortage of inputs and ordered as demanded in the SCN.

Demand upheld - appeal dismissed - decided against appellant.


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