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TMI Blog2022 (12) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 21,98,785/- already paid by them against the confirmed demand. ii. I order recovery of interest on the amount confirmed above, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944 and appropriate an amount of Rs. 2,51,653/- already paid by them as interest. iii. I confirm the demand of Rs. 21,75,023/- equal to cenvat credit availed by them on insulation material without having received the same in their factory, under Rule 14 of the Cenvat Credit Rules, 2004, read with section 11A(1) of the Central Excise Act, 1944, I order appropriation of an amount of Rs. 21,75,023/- already paid by them against the confirmed demand. iv. I order recovery of interest on the amount confirmed as above, under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11AB of Central Excise Act, 1944, and appropriate an amount of Rs. 4,04,542/- already paid by them as interest. v. I confirm the demand of Central Excise Duty amounting to Rs. 23,37,519/- on the inventory of damaged/rejected/non saleable goods written off in their books of account, under section 11A(1) of the Central Excise Act, 1944. 1 appropriate an amount of Rs. 23,37,519/- already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2009, addressed to DGCEI, Regional Unit, Pune intimated that they have deposited an amount of Rs. 25.00 lakh vide TR-6 challan dated 06.01.2009, which includes an amount of Rs. 21.98 lakh towards reversal of irregular CENVAT credit together with interest, amounting to Rs. 2.51 lakh, taken on the paint shop, procured from M/s Intech Surface Coating Pvt. Ltd., Pune, without having received or installed the same in their Pune plant. 2.4 Appellant have availed CENVAT credit on insulation material shown to have been received from their sub-contractor M/s. Singh & Singh, Jamshedpur. The investigations however, revealed that appellant had never received the insulation material at their Pune plant and the same was directly sent to their Jamshedpur unit. Thus they had wrongly availed CENVAT credit amounting to Rs. 19.97 Lakhs without actually receiving material, so the same was required to be reversed. It was also found that Appellant had availed double Cenvat credit on some of the invoices. Therefore, the Cenvat credit wrongly availed twice on the same invoices amounting to Rs. 1.78 Lakhs was required to be reversed by them. When this was pointed out to them, they vide their letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004 with intention to evade payment of Central Excise duty on the goods found short. Therefore, proviso to Section 11A (1) of CEA, 1944 for extended period of limitation is invokable. * liable to pay Central Excise duty/ reverse CENVAT credit on the finished goods/raw material/WIP etc. found short. * liable to pay Cenvat credit on the inputs/capital goods which were not used in the manufacture of finished goods in their factory. * are also liable to pay interest on the amount of Central Excise duty evaded/ Cenvat credit wrongly availed on the goods written off, under Section 11AB of CEA, 1944 read with Rule 14 of CCR, 2004 * liable for penalty under Section 11AC of the Act and Rule 15(2) of CCR, 2004 for the acts of omission and commissions. 2.7 A show cause notice dated 21.02.2011 was issued to the appellant asking them to show cause as to why:- i. The CENVAT credit amounting to Rs. 21,98,785/- (Rs. twenty one lakhs ninety eight thousands seven hundred and eighty five only) availed on the capital goods without having received the same in their factory, as shown in Annexure "A" to this show cause notice, should not be demanded and recovered in terms of Rule 14 of CCR, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Annexure "A" to this show cause notice, should not be demanded and recovered in terms of Section 11A(1) of CEA, 1944 read with Rule 14 of CCR, 2004 and why the amount of Rs. 1,06,90,268/- already paid by them during investigation as mentioned in para 12 & 14 above should not be appropriated against the above demand. viii. Interest on the above CENVAT credit/duty amount should not be recovered under Rule 14 of CCR, 2004 read with Section 11AB of the CEA, 1944. ix. Penalty should not be imposed upon them under Section 11AC of the CEA, 1944. x. Penalty should not be imposed upon them under Rule 15(2) of CCR, 2004. 2.6 The show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved appellants have filed this appeal. 3.1 We have heard Shri Rajesh Ostwal, Ms Payal Nahar Advocates & Ms Hanisha Jatania, Chartered Accountant for the Appellant and Shri Amrendra Jha, Deputy Commissioner Authorized for the revenue. 3.2 Arguing for the appellant learned counsel submits * The fact that the appellants have paid the demand along with interest and 25% penalty would not mean that the Appellants cannot proceed with the appeal. The issue is square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 3(5) /Rule 3(5B) for the period prior to 1.3.2013. The entire period involved in the present case is prior to 1.3.2013. Prior to insertion of Explanation vide Notification No. 3/2013-CE (NT) dated 1.3.2013, there was no recovery provisions. * Ericsson India Pvt. Ltd. [2019 (3) TMI 776 - DEL] * Heidelberg Cement India Ltd. [2017 (11) TMI 1394-Bang] * Steel Authority of India Ltd. [2020 (3) TMI 147-Chennai] * The department has not produced any evidence to prove that finished goods have been removed by the appellants clandestinely. * Pentagon Steel Pvt. ltd. [2013 (288) ELT 271 (T)] * Rashtriya Ispat Nigam Ltd. [2008 (9) TMI 663] * While making the demand revenue has not considered the excess stock mentioned in the statutory auditor's report. * Rule 3(5B) is not applicable to finished goods and Work in process goods * When WIP is not actually removed from the factory, there is no question of 'removal as such' under Rule 3(5). Therefore, credit reversal is not required under Rule 3(5). * Even after considering CBEC Circular No. 907/27/2009-CX, dated 7.12.2009, several judicial pronouncements decided that reversal of credit is not required on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to these written off shortages in terms of Rule 3(5B) of CCR, 04, and V. whether Central Excise duty is recoverable from the assessee in respect of finished goods found short and which appeared to have been cleared without payment of duty and without issue of invoices. 44. Before dealing with the issues before me, in order to comprehend the admissibility of cenvat credit on Capital goods/inputs not received into the factory of the assessee, demand for reversal of cenvat credit in respect of inputs used in the Work in Progress but later on scrapped as non-saleable etc, and demand for reversal of cenvat credit in respect of shortages in the inventory which were written in their books of account, and removal of finished goods without payment of duty, it is imperative that the related statutory provisions of the CCR,04, & CER, 02, be perused and understood. In the said context, I find that the following provisions are relevant to this case ...., 45. Accordingly, the issues raised in the show cause notice and the reply submitted by the assessee are being dealt with one by one as below: a. Cenvat credit availed on Capital Goods procured for setting up Paint Shop in their fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. insulation material was delivered at their vendor's premises in Jamshedpur In this case also the but the credit of the same was taken by the assessee, clearly in contravention of Rule 3(1) of CCR, 04, which stipulates that a manufacturer can avail credit of duty 'paid on any input or capital goods received in the factory of manufacture of final product'. The assessee have contended that that the insulation material required for further manufacture of final product was procured by M/s Singh & Sons, but in the said excise invoice issued by the supplier, the assessee was mentioned as consignee and therefore the cenvat credit was taken by them; that since Central Excise duty stands paid on the final sale price as declared by them to M/s Singh & Sons, which has been recovered from their customers M/s. Tata Motors Ltd., Jamshedpur, the excise duty stands paid on the final price as per Rule 10A of Valuation Rules, 2000; that M/s Singh & Sons have not availed cenvat credit on such insulated material directly received by them; that it is not the case of the department that there is a double availment of cenvat credit on the said insulated material nor is it the issue that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Cenvat credit as set out in the rule.' The sum and substance of the aforesaid dictum is that if a particular rule in the statute mandates doing of a thing in a particular manner, it should be done in that manner and the assessee cannot adopt his own methodology and later argue that, nevertheless, the object of the statute stands achieved. Further, if all the tax payers device their own methodologies to determine the tax liability vis a vis revenue neutral situations, the taxation laws and the mandated compliance would be reduced to a bundle of individual interpretations. Hence I am not inclined to accept the assessee's argument on this issue. Equity demands that one who comes to it should come with clean hands and not after breaking the law, be it procedural. Therefore I am inclined to reject the plea of the assessee to grant relief in this regard. C. Availment of cenvat credit twice on the same invoice- It was also noticed that the assessee had wrongly taken credit of Rs. 1.78 lakhs twice on the basis of same invoice, which was required to be reversed by them. They have not contested the issue and paid the sum of Rs. 1,78,063/- alongwith interest of Rs. 35,692/- Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to account for. Thus the assessee have themselves admitted that they were not able to account for goods worth Rs. 1.43 Crores. In such a situation the burden of proof lies upon them to prove that these goods valued at Rs. 1,41,83,975/- were indeed cleared after payment of duty at scrap value. They cannot equate written off accounted stock with written off unaccounted stock and try to demonstrate that the DGCEI is adopting different methods of valuation while demanding duty on written off shortages of rejects/WIP, which have been booked at their book value (prime cost + value addition) as per the accounting principles. Therefore the assessee's contention that there is excess demand of duty of Rs. 21,03,768/- is untenable. The assessee has further contended non applicability of Rule 3(5B) of CCR, 04 to demand reversal of credit. Here I find that the assessee has mis-interpreted the aforesaid Rule, which states that- 'If the value of any, (i) input, or (ii) capital goods before being put to use, on which CENVAT credit has been taken is written off fully or where any provision to write off fully has been made in the books of account, then the manufacturer or servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been calculated at Rs. 2,09,90,046/-(which includes shortages of finished goods valued at Rs. 50,50,670/- on which the C.Ex. duty works out to Rs. 8,32,350/-) However, the assessee have only reversed cenvat credit / paid C.Ex. duty of Rs. 1,06,90,268/- on this account. The assessee submitted that out of these shortages the unexplained shortages work out to Rs. 5,42,82,953/- on which they have discharged their duty liability of Rs. 1,06,90,268/- The reasoning adopted for justifying aforesaid material shortages are * That the company was in the process of implementing SAP system The migration from the earlier system to SAP system created various distortions in the records and problems in implementation of the SAP system * Stocks were not properly updated in the system * The purchases were incorporated in the system and its receipts were shown as stock but the goods used directly by the shop were not accounted for in the system. * The stock of general items like stationery, hand gloves, cleaning materials were also considered as shortages * Unit of measurement in many cases were wrongly considered in the SAP system, which resulted in fictitious. The assessee have contes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own statutory auditors of not appreciating the fact that the 'figures booked in 702 account cannot be attributed to write off by the Company on account of physical shortages'. Even for the sake of argument this reasoning is taken on its face value, still it is difficult to understand the whopping difference of Rs. 12.73 crores of material shortages. The assessee have reasoned this out by submitting that these book shortages have occurred over a period of time in an accumulated manner and not during 2007-08 only. This reasoning proves that the assessee have been negligent in their inventory management for quite some time and it is only during the evolutionary period of their internal system up gradation that the entire deficient accounting system got exposed. The assessee have also admitted that they have been Therefore I am unable to trace back the aberrations in their SAP system. inclined to conclude that they are short of any concrete evidence to disprove the write off figures in their own books of account unearthed by their own statutory auditors. The Bill of Material error is one of the main points being agitated by the assessee i.e. the goods which were not in the BOM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiated by any concrete proof, which does not have the force to disapprove the written off shortages in their Books of account. Proposed demand of duty on difference in stock of paints valued at Rs. 45,66,965/ involving duty amount of Rs. 7,52,609/- i. Here the assessee have contended that out of total book shortage of Rs. 1,31,65,215/- the booking of stock valued at Rs. 45,66,965/- represents a clear clerical mistake / error in considering the Unit of Measurement as ML instead of Litres and subsequent wrong posting in SAP; that the consumption of the paints was posted in ML instead of Litres. However, they have not been able to demonstrate in real terms the shortage presently booked and the shortage that would have been if the consumption had been posted in Litres. Even from the worksheet submitted the assessee this aspect is not clear. Therefore, I am unable to grant them any relief on this count. Further I find it surprising that some part of the total material gets booked in ml and the rest is not. ii. Demand on packing material valued at Rs. 1,38,71,456/- and the duty calculated at Rs. 22,86,016/- The assessee have contended that although the receipts of these materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es valued at Rs. 5,42,520/- involving duty of Rs. 89407/- * Maintenance Spares valued at Rs. 49,05,327/- involving duty of Rs. 8,08,398/- * Shortages arising out of stock transfer to Jamshedpur - value of Rs. 47,41,173/- involving duty of Rs. 7,81,345/- * Shortages under head - Carrier Film Weight - value of Rs. 20,22,577/- involving duty of Rs. 3,33,321/- * Shortages under head - Scrap rejection not booked - value of Rs. 1,36,52,252/- involving duty of Rs. 22,49,891/- f. Shortages of Rs. 0.24 Crore are in respect of finished goods - Since the shortages remain unexplained, the assessee have paid Central Excise Duty on the aforesaid amount. Therefore I do not find it fit to have relook at it and hold the assessee has contravened provisions of Rules 4, 6 & 11 of Central Excise Rules,, 2002. 46. Now I would like to go through some of the case laws relied upon by the assessee - i. Widia India Ltd. Vs. CCE, Bangalore - 2007(207) ELT 562 (Tri,-Bang.] upheld by the Karnataka High Court as reported in 2010 (255) ELT 36 (Kar.) - Having gone through the facts of the cited case I find that in that the book shortages were held to be excessive than the physical shortages with refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready discussed in para 17 above iii. Contech Instruments Ltd. Vs. CCE, Belapur 2010 (262) ELT 671 (Tri.MUM) is not applicable to the facts of the present case as already discussed in para 17 above iv. International Auto Ltd. Vs. CCE, Bihar -2005 (183) ELT 239 (S.C.) - is not applicable to the facts of the present case as already discussed in para 17 above. 47. The show cause notice proposes to recover Interest under Rule 14 of CCR, 04, r/w Section 11AB of CEA, 1944. As per the stipulations under Rule 14 of CCR, 04, 'where the Cenvat credit has been taken or utilized wrongly or has been erroneously refunded, the same alongwith interest shall be recovered from the manufacturer or provider of output service and provisions of Sections 11A & 11AB of CEA, 1944, or Sections 73 & 75 of Finance Act, 1994, shall apply mutatis mutandis for effecting such recoveries.' As discussed above in the foregoing paras, it is proved that the assessee have taken/ utilised Cenvat credit wrongly in respect of raw material / capital goods/finished, which were either. * * not received in the factory of the assessee, or * not accounted for in their books of account, or * written off in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till intervention of Departmental authorities. 49. As regards imposition or otherwise, of penalty on the assessee on going through the entire case I am inclined to hold that such huge shortages written off in their books of account and approved to by the Board of Directors, without looking at their obligations under the provisions of Cenvat Credit Rules, 2004 read with Central Excise Act, 1944, definitely points out to serious lacuna in their business accounting system and/or negligence on the part of persons The cenvat credit involved in responsible to comply with the legal obligations. this case is substantial and even if it is argued that there is absence of mala fide, the negligence on part of the assessee is discernible and hence this is a fit case for imposing penalty. 50. Further, I observe that the assessee is working in a self-assessment & self-removal regime where a trust based scheme prevails and where such mistakes are not condonable because, in the instant case, had the department not detected the wrong availment/utilisation of the cenvat credit the assessee would have enriched themselves to that extent. The assessee should have been more vigilant about their tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit Rules, 2004." 4.3 In the present case the appellant have paid the entire amount demanded along with the 25% of the penalty imposed under Section 11AC of the Central Excise Act, 1944. Vide letter dated 23.5.2012 they intimated the department that the payments made is made "Under Protest" and the appellants have reserved their right to challenge the impugned order in due course of time. "We are aggrieved by the said Order in Original confirming the entire duty and levy of interest and penalty, as none of our submissions stands addressed in true spirit and also ignoring, the supporting evidences produced while passing the impugned Order in Original. The allegation of suppression of facts has been made on a wrong premise, which we submit that there is no wilful and/ or deliberate attempt with an intent to evade duty on our part and the same is conspicuously absent in the instant matter and the case has made based on figures reflected in the books of accounts. It is a sheer accounting error which has led the department to proceed with the said case and as ascertaining the errors occurred in posting / not posting in SAP system during the transition period has led to the said diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner (Appeals). 6. In view of the above observations, I find no merit in the appeal filed by the Revenue and reject the same." B. Safex Electromech (P) Ltd. [2019 (27) GSTL 535 (T)] held as follows: 4. On careful consideration of the submissions made by both the sides and perusal of the records, I find that though the appellant had paid Cenvat amount along with interest and 25% penalty on the instance of audit objection but subsequently, they claimed the refund. The only reason for rejection of the claim is that the appellant had opted for the provision made under sub-section (6) & (7) of Section 11A which reproduced below :- (6) Any person chargeable with duty under sub-section (5), may, before service of show cause notice on him, pay the duty in full or in part, as may be accepted by him along with the interest payable thereon under section 11AA and penalty equal to one per cent of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of twenty-five per cent of the duly, and inform the Central Excise Officer of such payment in writing. (7) The Central Excise Officer, on receipt of informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the other issues also. However in their prayer appellants have prayed for setting aside the impugned order, whereas we do not find any grounds in the appeal memo challenging the demand in respect of at least the demand made in respect of the Cenvat credit availed on the capital goods required for setting up paint booth. 4.6 In respect of the demand made on the capital goods not received in the factory of manufacture appellants have in the ground of appeals, recorded as follows: Cenvat Credit availed on capital goods required for setting up paint booth. B.1 The appellants availed cenvat credit of Rs 21,91,785/- on various equipments procured from M/s Intec Surface Coating Private Limited, for setting up a paint shop in their factory. However, these capital goods were never received and installed in their factory. B.2 The appellants had placed an order for the Paint Line in FY 2007-08 on M/s. Intech Surface Coating Pvt. Ltd. as per the following details: Supplier Name PO Number Date PO Value including Taxes Intech Surface Coating Pvt Ltd 1301500224 24.12.2007 3,07,46,396 B.3 An amount of Rs 1.75 cr. was paid as an advance to INTECH. The said paint booth was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted as follows: Issue No Demand Involved Departments Contention Brief submissions of the Appellant 4. Capital goods for setting up a paint shop 21,98,785 [Denial Of Credit under Rule 3 (1)] Capital goods on which the appellants have claimed cenvat credit have neither been received or installed in the appellant's factory. Hence the credit availed is not admissible as per Rule 3 91) of CCR, 2004. [Refer para 3.2 page 108 of appeal memo] (a) The appellants procured capital goods on payment of duty for setting up a paint shop and availed cenvat credit on the same. However, the owner of the land on which such paint shop was to be set up, did not have a clear title to the said land. Therefore, appellants kept the capital goods in a temporary godown. Due to this reason, the appellants have not been able to put the capital goods to use, till date. (ii) The appellants were under bona fide belief that they are going to use the capital goods and hence they have taken cenvat credit. However on pointing out by the audit team, the appellants immediately reversed the Cenvat credit along with the interest as prudent tax payer. Therefore, penalty is not imposable on the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to them, in terms of Rule 10A of Valuation Rules 2000. The cost of insulation material was included in the sale price of the final product supplied by M/s Singh and Sons to the appellants' customer i.e. M/s Tata Motors Ltd., Jamshedpur. C.4 The fact that M/s. Singh and Sons have not availed cenvat credit on such insulation material is undisputed. Therefore, it was not a case of double availment of cenvat credit. C.5 However, the said insulation material was not received in the factory of the appellants. Therefore, availment of credit on the same not being in conformity with Rule 3(1) of Cenvat Credit Rules the appellants reversed the said credit, along with interest. 4.10 At the time of arguments and in their written submissions appellant have stated as follows: Issue No Demand Involved Departments Contention Brief submissions of the Appellant 3. Inputs (Insulation Material) received by sub-contractor. 21,75,023 [Denial Of Credit under Rule 3 (1)] Insulation material is directly received and used by the sub-contractor of the appellants. Hence the credit is not admissible to the appellants though the invoice mentions consignee name as appellants. Out of Rs 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble goods. Explanation.- For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him." From the provisions of Rule 10 A as reproduced above it is quite evident in the case covered under this Rule, it is the principal manufacturer who is selling the goods produced on job work, for delivery at the time of removal from the factory of job worker, thus it is principal manufacturer who has manufactured and cleared these goods. Undisputedly in the present case the goods were cleared from the premises of the job worker to unrelated buyer after determination of value under Rule 10A. Thus the clearances undertaken were in fact clearances made by the principal manufacturer and all consequences including admissibility of CENVAT Credit on the input raw materials supplied by them to the job worker is on the principal manufacturer. The appellants in fact being the principal manufacturer cannot be faulted when they had availed the credit in respect of the inputs supplied by them directly to the job wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial sent by the principal, credit in respect of duty paid input used by the job worker is available to the principal supplier of the raw material. As regards the judgment of Geno Pharmaceuticals Ltd. (supra) relied upon by the ld. AR, I find that the fact in that case was duty was discharged by the job worker on loan licence basis and the credit was claimed by the principal who has neither manufactured the goods nor paid the excise duty. Therefore, the credit was rightly denied in that case. The fact of the case is not similar to facts of the present case. Bilt Graphic Paper Products Ltd. Vs. CCE - 2018 (5) TMI 390 (T) "4. We have carefully considered the submissions made by both sides. We find that there is no dispute that the inputs for which the job-worker has issued the invoice in favour of the appellant has been admittedly used in the manufacture of appellant's final product which suffered excise duty. In such case, the CENVAT Credit is clearly admissible particularly under specific provisions provided under Rule 3(1), which reads as under: - "(1) A manufacturer or producer of final products or a [provider of output service] shall be allowed to take credit (hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agree with this submission inasmuch as the credit in question is not the one availed by the respondents on their own inputs but the one availed by them in respect of the input added by the job worker for the manufacture of control panel. The duty paid on control panel received by the respondents from their job worker includes the duty paid by the latter on the input (electric wires) added by them while manufacturing the control panel. This component of the total duty on the control panel had not been taken as Modvat credit by the respondents initially. It was taken as credit only when they received the control panel from the job worker. This credit was clearly admissible to the respondents. The decision of the lower appellate authority is, admittedly, supported by the case-law relied on by it. Flex Industries Ltd. [2006 (201) ELT 479 (T)] The appellant is a manufacturer of Polyester Film. The main raw materials are PAT, MEG & DMT. It sends these materials to job workers for processing (into chips) and return. In processing the job workers use other duty paid inputs also. While returning the processed inputs to the appellant, the job worker also transfer the Modvat credit attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed with consequential relief, if any, to the appellant." 4.13 The principles stated in the above decision were incorporated in the CENVAT Credit Rules, 2004 vide the amendments made by Notification No 6/2015hIn view of the decisions as above we are of the view that the demand made for recovery of the CENVAT Credit availed by the appellant on the insulation material sent directly to the job worker without receiving the same in their premises cannot be sustained, the appeal needs to be allowed in respect of this demand. 4.14 In respect of the demand for denial of the CENVAT credits alleging that appellant has availed the CENVAT Credit twice on the same invoice, appellants have not stated anything in their appeal memo. However in their submissions made at the time of hearing they contested the demand. From the show cause notice and the impugned order we do not find any support for the allegation made. Even the detail of invoice against which the credit has been alleged to have been taken twice is not stated. In absence of any details in respect of the invoice number/ date and the entries in the CENVAT account by which the credit has been taken twice, we are not in position to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not clear on which rule will apply to the present case. (ii) The department has admitted the fact that the appellants have made adjustment in the closing stock. This proves that there is no physical removal of WIP involved in dispute. It is settled legal position that Rule 3(5) of CCR, 2004 is not invokable if there is no physical removal of goods. (iii) Rule 3(5B) is not applicable to stock of WIP written off. Therefore, no reversal of credit is required in the case of WIP goods, in terms of Rule 3(5B) of CCR, 2004. (iv) Further, the appellants submit that demand can be raised on scrap value only and not on written off value, since part of damaged WIP were cleared as scrap by the appellants in the subsequent period, on which duty was paid & accepted by the department. 4.16 From the facts as noted above it is observed that these demand s have been made in respect to the accounting shortages, which were in respect Raw material, Work in Process material and Finished Goods. These shortages are not the physical shortages determined by the actual physical stock taking undertaken by the department. As per the appellants the entire issue of shortage in the present case, cropped up wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the damaged/ rejected/ non-saleable items, having value of Rs 26,333 ('000), identified by the management." The above observation made only point to identification of damaged/ rejected/ non-saleable items determined by the management. The fact of their clearance from their premises cannot be presumed by the observation made. It also do not imply that the said goods have been written off in the book of accounts of the appellant. Further Statutory auditors in paragraph: * 5 (a) (i) & (ii) of the "Auditors Report To The Members of automotive Composite Systems (International) Limited" has observed as follows: "5(a)(i) The closing stock of inventory of Rs 127,519 ('000) is net of damaged/ rejected/ non-saleable items determined by the Company on the basis in the Note 7 of Schedule 18. Being a technical matter, we have relied on damaged/ rejected/ non-saleable items as determined by the management. Further, in the absence of quantitative records for damaged/ rejected/ non-saleable items, we have relied on the management representation that the entire quantity of such items, as identified and determined, require adjustment to the stock physically verified at the year end. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tine removal thereof; Relying on 1991 (52) E.L.T. 145; 2000 (125) E.L.T. 781 (Tribunal) = 2000 (91) ECR 569, 2000 (117) E.L.T. 644." B. Widia India Ltd Vs. CCE - 2006 (9) TMI 21, affirmed by Karnataka High Court in 2010 (255) ELT 36 (Kar.), the Court held as under: "6. We have gone through the records of the case carefully. The main allegation of the Revenue is that the appellants conducted physical stock verification at the end of each year and found out shortages. They have not informed the Department of the shortages. The shortages found were adjusted in their SAP Inventory by passing entry under 702 system code movement and value of net shortage is set off in the Annual Reports. The appellants have failed to explain the reasons for shortages. Instead they posted entries in the company accounts reducing the value to the extent of goods short found. Thus it appears that the dutiable finished goods have not been accounted for properly. Therefore the appellants are required to discharge duty on the quantity of finished goods found short as evidence from their own stock taking and their own private statutory records of production which they failed to do. They are liable to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage, when the production of an item is 100, there is a possibility of the same being shown as either 102 or 98. This is what all we can infer from the Show Cause Notice issued to the appellants. The Adjudicating authority herself has observed that the transaction of the assessee is heavy and voluminous and almost one lakh pieces of items are manufactured and cleared from their factory, on an average annually. She has given a finding that there seems to be a certain degree of negligence in maintaining the stock account as far as the Central Excise law is concerned. But there is no finding that the entries in the RG-1 Register are wrong. In the absence of such a finding, the above finding of the Commissioner is not sustainable. There is also no evidence of any clandestine removal of the finished goods. In these circumstances, no duty can be demanded. There is also absolutely no case for imposing any penalty. In these circumstances, we set aside the impugned order and allow the appeal. The case laws relied on by the appellants are very relevant in the facts of the case." C. Micro Forge (I) Pvt. Ltd. [2004 (2) TMI 180] "5. It is an admitted fact that the stock position was arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no demand could be raised under Rule 57-I of the Rules. Accordingly, Section 11AC and Section 11AB of the Act would have no application to the facts of the present case." E. National Engineering Industries Ltd. [2015 (330) ELT 681 (T)]. "5. The admitted facts of the case are that the assessee is having computerized accounting which manages end to end operations i.e. from the set of procurement of raw material to sale of finished goods. It is also admitted fact that there are large varieties of raw materials, work-in-progress and finished products. The consumption of raw material goods which are used in process of making and the finished goods are not physically numbered and accounted on day-to-day basis. The standardized system of accounting based on measurement and conversion of raw material to finished product on weight/length basis is fed to the computer. The assessee undertakes with the help of cost auditor stock verification on annual basis to reconcile the inventory position. In such a situation it is but natural that minor variation (0.5% and below) do occur during reconciliation. The explanations provided by the assessee during the original proceedings have been accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nputs or capital goods have been produced is recorded and the burden of proof regarding the admissibility of the Cenvat credit shall lie upon the manufacturer taking such credit." The language of the Rule is plain and unambiguous. If the assessee claims entitlement to Cenvat credit, it is the burden of proof upon the assessee to prove the admissibility of the Cenvat credit. In the matter at hands and in the facts and circumstances of the case, the only manner in which the assessee could have justified the Cenvat credit claim was by showing through the Books of Accounts or by any other piece of evidence that the inputs which were short as per Audit Report and were not utilized in the manufacture of final product. Having gone through the orders of all the authorities, there does not appear to be any such attempt on the part of the assessee. On the contrary, we are convinced that more reliance is upon claiming exemption, because Cenvat credit claimed is upon the inputs which are a very small fraction of total inputs imported. We may only quote some part from the statement of Authorized Signatory of the assessee as referred in the order of the Joint Commissioner, which reads thus : - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng systems to ensure accuracy and efficiency. The evidence on record does not indicate any diversion of inputs in contravention of rules relating to utilisation of inputs. The demand is merely based on the shortages detected during physical tallying, that too without taking into account the excesses noticed. Since there is no evidence, that the excesses are not the result of clandestine receipt of inputs, the same view is required to be taken in regard to shortages also, that the shortages are not the result of any clandestine or unauthorised utilisation of the inputs." Probably in order to rely on these observations, the letter from Cost Auditor Shri Dhananjay V. Joshi was produced, which was practically in the same terms as the letter of Auditor namely Price Water House in the reported judgement and paragraphs No. 5.3 to 5.6 of which are reproduced in paragraph No. 2 of the reported judgment. From the observations of the Tribunal, it is evident that the Tribunal has not placed reliance upon any legal provision, either from the Act or from the Rule, while exonerating the assessee from the liability to pay duty by reversing the Cenvat credit wrongly claimed. When there is no stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing the motor vehicles. A finding of fact is recorded that there was no clandestine of removal of any inputs. It is therefore, not a case for any interference." Accordingly the view taken by the tribunal in the case of Maruti Udyog has been approved and sanctioned by the Hon'ble Supreme Court. Accordingly the reliance placed by the revenue on the decision of Hon'ble Bombay High Court decision in the case of Greaves Cotton Ltd., which did not agreed with the decision in case of Maruti Udyog cannot be proper. 4.20 The entire demand has been made by the revenue by invoking the provisions of Rule 3 (5B) of the CENVAT Credit Rules, 2004, which at the relevant time read as follows: "Rule 3 CENVAT credit- (5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9. (5B). If the value of any, (i) input, or (ii) capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the scheme of MODVAT Credit, Hon'ble Supreme Court has in the case of Dai Ichi karkaria Ltd [1999 (112) ELT 353 (SC)] observed as follows: "17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilized, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ensure accuracy and efficient. The entries regarding receipt of inputs are made at receipt point where the consignments are inwarded and after sample checking of quality and invoiced quantity, Goods Inward Note (GIN) is prepared, thereafter the acceptable inputs are stored in the allotted Bins. As per the learned counsel errors can creep in for many reasons like picking up wrong LH/RH parts, despatch of alternate parts, incorrect posting to alternate parts etc. Also there may be errors in noting down various types of parts during physical stock verification, parts not available at the time of stock taking at its specified storage rack but subsequently found in another storage rack. He also submits that the shortages/ excess are only theoretical since they follow total documentation discipline with respect to receipt of inputs and consumption of inputs and the value of inputs found short/excess if compared with the total value of procurement of inputs is negligible i.e. 0.59% approximately and such a meagre shortages are commercially acceptable. The inputs were undisputedly received in their factory and upon receipt they were properly accounted for. Learned counsel denied the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess was found and also some of the parts which were not available at the time of stock taking at its specified storage rack, subsequently found in another storage rack. It is not the case that the inputs which were found short were not received or were clandestinely removed. We also cannot lose sight of the fact that there were excesses also in inputs which were brought to the notice of the department but these excesses were ignored by the department. This fact itself establishes the bonafide of the appellants in claiming CENVAT credit on the basis of figures disclosed by them in respect of inputs which were used by them. Although there is a finding that the appellants have suppressed the facts with intent to wrongfully avail and utilize the inadmissible Cenvat credit, but the same has not been substantiated by producing any evidence. Merely making allegations of suppression or intention is not sufficient unless the same is established beyond reasonable doubt. The inputs were undisputedly received in the factory of the appellants and upon receipt they were properly accounted for. In our considered view rule 3(5B) ibid cannot be applied on the facts of this case as the entire case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y covered by the decision of the Hon'ble Supreme Court in case of Maruti Suzuki India Ltd. (supra). The impugned order is set aside and appeal is accordingly allowed. Following the ratio of the aforesaid judgments of this Tribunal which is based on the Hon'ble Supreme Court's judgment in case of Maruti Suzuki India Ltd. (supra), I am of the view that Cenvat credit cannot be disallowed in the facts and circumstances of the present case. The impugned order is set aside, appeal is allowed." (iii) Tata Motors Ltd. Vs. Commissioner of Central Excise - 2017- TIOL-1027-CESTAT-MUM 4. I have gone through rival submissions. I find that the Order-in-Original clearly records that the appellants have elaborate method of accounting. There is no allegation of any mischief in the shape of clandestine clearance of receipt of raw materials. The Tribunal in case of Maruti Udyog has observed as follows: - "...... 5. In view of the above, I find that the issue is squarely covered by the decision of the Hon'ble Supreme Court in case of Maruti Suzuki India Ltd. (supra). The impugned order is set aside and appeal is accordingly allowed. Following the ratio of the aforesaid judgments of this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice fails to pay the amount payable under sub-rule (5), (5A) and (5B), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT credit wrongly taken. 8. Learned Counsel have also pressed the ground that as they were not required to reverse the cenvat credit on partial writing down the value of inputs, prior to 01.03.2011, accordingly, we hold that as there was no such legal requirement. The learned Counsel also prays that they are entitled to refund, already reversed credit on account of partial writing down of value, prior to 01.03.2013. 9. In this view of the matter, we hold that the issue has arisen due to change of opinion on the part of the Revenue, but there is no suppression of facts on the part of the appellants. Further, we find that no amount was due to be reversed under rule 3(5B) on the date of issue of show cause notice. Accordingly, we hold that larger period for limitation can not be invoked and no show cause notice was required to be issued. Accordingly, we hold that impugned order is not sustainable, and is set aside. Appeal is allowed with consequential relief. In this view of the matter, we set aside the demand, penalty and inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective. Therefore, by following the ratio of Sanghi Eng. cited supra, I am of the view that the impugned order is not sustainable in law on merit as well as on limitation. Therefore, I set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any." 8. From the discussions made above, and following the above decisions, I am of the considered opinion that the demand cannot sustain. Impugned order is set aside. Appeal is allowed with consequential relief, if any." 4.24 In the present case the entire demand has been made by the revenue by relying on the book of accounts taking note of the adjustment of stocks of inputs/ work in process/ finished goods as shortages, without producing any evidence of clandestine clearance of the same Further no stock taking has been independently conducted by the revenue to determine any shortages under panchanama. The demands made by the revenue just by alleging shortages justified in view of the following decisions of tribunal. A. Pentagon Steel Pvt. ltd. - 2013 (288) ELT 271 (T) "8. However, we are of the view that mere shortage of finished goods or raw materials in the stock cannot by itself construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of accounts, then the manufacturer is required to reverse the credit taken on the said input. As far as finished goods in concerned, it is stated that excise duty is chargeable on the activity of manufacture or production. Even though liability for payment of tax has been postponed to the time of removal of goods for the factory, but still the legal liability to pay the excise duty has been fastened on the goods, when it has been manufactured or produced. Therefore, normally all goods manufactured suffer excise duty at the time of removal, but if the manufactured goods are destroyed due to natural causes etc., Rule 21 of Central Excise Rules, 2002, provides for remission of duty. Further, Rule 3(5C) of CENVAT Credit Rules, 2004, also requires reversal of credit on the inputs when the duty is ordered to be remitted under the said Rule 21. Therefore, if the goods have been manufactured, in that case, a manufacturer is liable to pay excise duty unless duty is remitted under Rule 21. Therefore, if the value of finished goods is written off, the manufacturer would be liable to pay excise duty or he would be required to reverse the credit on the inputs used, if duty has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants stand is that it was the work-in-progress, which was destroyed in the fire. The said goods were admittedly work-in-progress, in which case, no reversal of credit is justified. There is clearly no evidence on record to substantiate Revenue's allegations and findings that the destroyed goods were actually inputs, which were not issued for further manufacturing." 4.26 In SMG International [2016 (2) TMI 1037, following has been held: "4. The ld. Counsel for the appellant submitted that initially the refund claim was rejected by the adjudicating authority on the premises that as the appellant informed the department that they are giving the figures of written off work in progress in their balance sheet and has not been finalised that they will submit the same. In view of the above, the adjudicating authority rejected their refund claim in terms of Rule 3(5B) of the Cenvat Credit Rules, 2004 read with C.B.E. & C. Circular No. 907/27/2009-CX, dated 7-12-2009. The said order was challenged before the ld. Commissioner (Appeals) who rejected the refund claim relying on the provisional Rule 3(5C) of the Cenvat Credit Rules, 2004. As the provisionally Rule 3(5C) of Cenvat Credit Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been raised on the basis of information appearing in the balance sheet. In this connection, I respectfully follow this judgment by the Northern Bench, Delhi in the case of Hindalco Industries Ltd. (supra). And since the balance sheet of the company being publicly available document, the allegation of suppression of such information is not sustainable. Therefore, extended period cannot be invoked under proviso to Section 11A(1) of the Act ibid. ...." C. Martin & Harris Laboratories Ltd. [2005 (185) ELT 421] "5. Apart from this, the extended period of limitation for raising the demand from the years 1998-99 through a show cause notice dated 26-8-2003 could not be invoked. There was no suppression of material facts by the appellants as the balance sheets prepared by them were publically available documents and copies of the same were sent to the Revenue also. The duty demand raised is apparently time-barred. In this view, we are fortified by the ratio of the law laid down in the case of Hindalco Indus. Ltd., v. CCE, Allahabad, 2003 (161) E.L.T. 346 (T), wherein also the demand was raised on the basis of the information appearing in the balance sheet of the assessee/company after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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