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2018 (2) TMI 284

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..... 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 Mt .....

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..... Tribunal, Chennai 2. Brief facts of the case of the appellant are as follows:- The appellant is engaged in the manufacture of additives for lubricating oil classifiable under Chapter 38 of the Central Excise Tariff Act, 1985. The appellant availed CENVAT credit in respect of excise duty paid on inputs and capital goods and service tax paid on input service. Show Cause Notices dated 01.02.2005, 06.05.2005 and 27.10.2009, were issued by the Commissioner of Central Excise, Chennai demanding a sum of ₹ 31,30,637/-, ₹ 5,94,724/-, ₹ 2,74,481/- respectively being the MODVAT/CENVAT credit taken on inputs, which were not used in the manufacture of final products, during the periods from January 2000 to March 2004, April 2004 to January 2005 and March 2009 respectively. The appellant sent replies to the said Show Cause Notices stating that the the shortage was due to heat, evaporation and differences in measurement methodologies. After considering the reply of the appellant, the jurisdictional Commissioner and the Commissioner (Appeals), passed orders confirming the demand made in the Show Cause Notices, with applicable rate of interest and also imposing penalty. Agg .....

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..... d that the raw materials, which are liquid in nature with very high viscosity, were received in their factory in tankers/ISO containers and credit was taken only on actual quantity received. The raw materials were duly measured by using a weighbridge and credit was taken only in respect of the quantity, determined through the weighbridge. According to the appellant, raw materials are stored in various storage tanks located in the factory and by the very nature of the materials, there will be a physical change, through thickening, based on the temperature level. The appellant further submitted that it is not possible for them to use the raw materials as such, and the tanks are equipped with heating facility and a temperature gauge, to monitor and measure the temperature. After heating the tank, they draw the material and the quantity drawn for consumption is measured by mass-flow meter, before using in production. Since only weighbridge was used at the time of receipt, and a different measurement device viz. mass flow meter was used for flowing liquids, a reconciliation was done, at the end of every month. The appellant also contended that Cenvat Credit Rules do not provide for reve .....

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..... LOA 262 1009.100 1,81,59,830 4275.305 4,35,79,251 9. Monthwise variations between the physical stock and book stock, in respect of the above inputs, for the year 2001-2002 are tabulated below:- 2001-02 Qty in MT A. GLISSOPAL 1000 (Poly Iso Butene) April May June July Aug Sept Oct Nov Dec Jan Feb Mar Physical Stock 117.808 108.185 189.766 56.626 56.626 206.086 284.466 193.000 55.161 79.690 120.964 0.000 Book Stock 117.808 108.185 191.844 59.470 56.626 206.08 .....

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..... een from the above table that for more than 70% of the months, physical stock exactly tallies with book stock and not even, a meager variation is reported. The above position indicates that there are no problems or shortcomings in the measuring system adopted by the appellant. 11. During the year 2004-05 also, similar picture emerges, and the details are reproduced below:- 2004-05 Qty in MT A. GLISSOPAL 1000 April May June July Aug Sept Oct Nov Dec Jan Physical Stock 65.457 44.033 6.882 6.734 127.824 63.260 80.228 84.124 100.807 16.200 Book Stock 66.158 42.657 7.719 5465 127.824 62.850 80.228 84.124 101.207 .....

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..... OLOA 200 (in MT) 1 Mar '00 5.244 2 Oct '00 3.130 3 Jul '01 4.526 4 Jan '02 12.658 5 Apr '03 3.807 6 Nov '04 3.400 GLISSOPAL 1000 (in MT) Sl.No Month Shortage 1 Feb '00 5.238 2 Apr '00 3.304 3 May '00 13.510 4 Jul '00 6.031 5 Oct '00 6.061 6 Jan '01 10.453 7 Feb '01 5.282 13. In the above said circumstances, the Commissi .....

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..... of ₹ 2,74,481/-, as detailed in the Show Cause Notice dated 27.10.2009, with applicable interest. Penalty of ₹ 2000/- was also imposed. Against which, the appellant has preferred an appeal before the Commissioner of Central Excise (Appeals), Chennai. The Commissioner (Appeals), vide order dated 20.02.2013 made in Order-in-Appeal No.28/2013 (M-I), allowed the appeal, in respect of penalty, and dismissed the appeal in respect of the demand and interest. 16. Aggrieved against the Order-in-Original Nos.4 and 5/2006 passed by the jurisdictional Commissioner of Central Excise, Chennai, and also the Order-in-Appeal No.28/2013 (M-I) passed by the Commissioner (Appeals), Chennai, the appellant has filed Appeals ( E/337/2006, E/381/2006 and E/41246/2013) before the Customs, Excise Service Tax Appellate Tribunal, South Zonal Bench at Chennai,. The appellant has also filed another appeal (E/141/2006) against the denovo order of the Commissioner (Appeals) dated 30.09.2005 made in No.90 and 91 (M-I), wherein the demand of ₹ 4,46,330/- and ₹ 12,811/- respectively were confirmed. 17. The Appellate Tribunal, by its common order dated 13.02.2015 passed final order No. .....

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..... to weighment methods. The stand taken by the appellant that inputs remained in the pipeline during the process of transit, cannot be accepted, for the reason that, if the raw materials remained in the pipeline, in the continuous process, the shortage should be at one time, as in the first-in first-out, and there cannot be continuous shortage during the process of transit. Further, it is seen from the material on records that on verification of physical stock and book stock for the year 2001-02, there was no shortage between the physical stock and the book stock, for more than 70% of the period, whereas, only for few months and for particular inputs, there had been differences in the physical stock and book stock. The appellant has not substantiated his contention that the shortage was due to weighment methodologies. The appellant has neither recorded the shortage in RG-23 and part-1 and part-2 nor intimated the shortage to the department, instead the appellant has deliberately shown it as the consumption at the end of the month. Therefore, the adjudicating authority has rightly invoked the extended period. 21. It could be seen from the material on record that not even a single .....

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..... 182.925 146.433 Variation 0.000 0.000 0.000 -4.526 0.000 0.000 0.000 0.000 -1.894 -12.658 0.000 -1.275 B.OLOA 262 Physica l Stock 193.913 151.349 101.482 49.526 96.932 92.555 35.684 21.627 56.165 106.120 58.042 39.141 Book Stock 193.913 151.349 101.482 49.526 97.507 92.555 35.774 23.827 55.663 104.442 58.042 39.141 Variation 0.000 0.000 0.000 0.000 -0.575 0.000 -0.090 .....

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..... ntable number of pieces or packages and whether all such packages and pieces have been received and accounted for at the receiving end. (iv) Whether the difference in weight in any particular case is on account or weighment on different scales at the dispatch and receiving ends and whether the same is within the tolerance limits with reference to the Standards of Weights and Measures Act, 1976. (v) Whether the recipient assessee has claimed compensation for the shortage of goods either from the supplier or from the transporter or the insurer of the cargo. 13. All these factors listed above and any other relevant factor has to be kept in view in deciding any particular case as to whether the entire consignment has been received at the end of the recipient assessee without any diversion. Tolerances in respect of hygroscopic, volatile and such other cargo has also to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims. Similarly, minor variations arising due to weighment by different machines will also have to be ignored if such variations are within tolerance limits. In our view, each case has to be decided according to merit and no .....

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..... antity of finished product, the assessee therein was entitled to Cenvat Credit on total quantity and value of inputs that went into making of fabric. The relevant portions are as follows:- 12. Keeping the above in mind, if we get back to the scope of Rule 9A, it is seen that there are three expressions used. They are 6 (i) inputs of such finished product (ii) lying in stock or in process and (iii) contained in finished product. 13. To say that what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression 'inputs of such finished product' contained in finished products' cannot be looked at theoretically with its semantics. It has to be understood in the context of what a manufacturing process is. If there is no dispute about the fact that every manufacturing process would automatically result in some kind of a loss such as evaporation, creation of by-products, etc., the total quantity of inputs that went into the making of the finished product represents the inputs of such pro .....

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