Customs, Excise and Gold Tribunal - Tamil Nadu
Bhel vs Cce on 5 December, 2007
Equivalent citations: 2008(125)ECC142, 2008(151)ECR142(TRI.-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The appellants are a Public Sector Undertaking. They are aggrieved by denial of Modvat credit to the extent of Rs. 69,15,108/- on inputs found short for the period 1995 - 96 to 1998 - 99 as also by a demand of duty of Rs. 42,119/- on 'coal ash' cleared during the period from 23.7.1996 to 31.3.1998. They are also challenging a penalty [equal to the sum of the above amounts] imposed on them under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act.
2. After examining the records and hearing both sides, we note that the appellants had resisted the proposal to deny the above credit to them, by pleading that there were also excesses of inputs in their factory during the material period. It appears, the adjudicating authority had given opportunity to the party to reconcile the shortages with the excesses. The assessee furnished statements showing shortages and excesses of inputs. In each statement, every input had a material code number. The Commissioner found that the code numbers of inputs in respect of which excesses were claimed were different from those of inputs in which shortages were found. Therefore, learned Commissioner declined to set off the excesses against the shortages. In the result, Modvat credit was disallowed on the entire quantity of inputs found short for the period of dispute. As regards coal ash, the assessee resisted the demand by submitting that the item was not excisable. This plea, however, was not accepted. Accordingly, learned Commissioner demanded duty on coal ash cleared without payment of duty during the material period.
3. It is the submission of learned Counsel that the shortages found in the impugned order are based only on the stock taking done by the company. That the entire quantity of inputs on which Modvat credit was availed was received in the factory is not in dispute. According to learned Commissioner, counsel submits, the shortage found of inputs is indicative of non-utilization thereof in the manufacture of final products and, on this basis, the appellants were held not eligible for input duty credit under Rule 57A of the aforesaid Rules. It is submitted by learned Counsel that the shortage found is only to the extent of 0.66% of the total quantity of inputs consumed in the manufacture of finished goods during the material period. Some of the inputs received in the factory during such period were not 'modvatable' on account of the fact that they were not duty-paid. Separate account of such inputs was also furnished to the Commissioner and such accounts indicated only 0.35% shortage. Contextually, learned Counsel submits that, in similar cases, this Tribunal has condoned such shortages of inputs in the cases of other companies, having regard to the material accounting practice and volume of transactions of such companies. In this connection, learned Counsel has relied on the following decisions:
(i) Maruti Udyog Ltd. v. CCE, Delhi - III
(ii) Hindustan Zinc Ltd. v. CCE, Visak
(iii) Denso Kirloskar Indus. Pvt. Ltd. v. CCE, Bangalore 2006 (195) ELT 102 (Tri. - Bang.)
(iv) CCE, Mysore v. TVS Suzuki Ltd. 2006 (206) ELT 589 (Tri. - Bang.)
(v) Asco (India) Ltd. v. CCE, Chennai 2007 (213) ELT 553 (Tri. - Chennai)
(vi) CCE, Pune v. Telco Ltd. Final Order No. A-1117/WZB/04/C-III dated 25.8.2004
4. In respect of the demand on coal ash, it is submitted that a similar product was held to be not excisable in the case of Union of India v. Ahmedabad Electricity Co. Ltd. .
5. Learned SDR submits that there can be no automatic off-setting of excesses against shortages unless the assessee explains the relevant facts. In this connection, he claims support from the Tribunal's decision in Siemens Ltd. v. Collector of Central Excise, Calcutta - I .
6. Regarding coal ash, learned SDR has submitted, albeit feebly, that the apex Court's decision in Ahmedabad Electricity Co. Ltd. (supra) is not in relation to the product in question and therefore that decision cannot be followed in the present case.
7. After giving careful consideration to the submissions, we find that the Revenue has not alleged that any part of the inputs, whether modvatable or not, received in the assessee's factory was diverted without being used in the manufacture of boiler components and accessories (final products). The appellants have taken Modvat credit of the duty paid on duty-paid inputs received in their factory during the material period. No part of these inputs was alleged to have been removed as such out of the factory. No theft of such inputs was reported at any point of time, nor alleged. The assessee's account of shortages of inputs vis-a-vis quantities received in factory was accepted as such by the Revenue. If that be the case, we are at a loss to understand as to why their explanation of shortages cannot be accepted. The assessee claimed set off between excesses and shortages. In support of this claim, they furnished separate accounts also. These accounts have been shown to us today. Learned Counsel has invited our attention to a specimen instance in which both shortage and excess were recorded in respect of a particular input. Input of Material Code 150822336500 figures in the account of shortages as well as in the account of excesses. An excess quantity of 130 meters has been noted on 24.8.1998 and a shortage of the same quantity was noted on 24.9.1998. It appears to us that, had learned Commissioner applied his mind a little more carefully to these accounts, he would, perhaps, have allowed a set-off. Though, in the impugned order, there are references to shortages of quantities here and there, we have not found consistency with reference to the accounts produced by the assessee.
8. Apart from the above, the assessee's case with regard to Modvat credit is supported by a line of decisions of this Tribunal. In the case of Maruti Udyog Ltd. (supra), a shortage of 0.24% of inputs received and unreconciled even after annual physical stock verification was ignored on the ground of fairness and reasonableness and the demand of the Revenue based on denial of Modvat credit on the input found short was set aside. In the case of Hindustan Zinc Ltd. (supra), the percentage of loss found short in inputs was to the extent of less than 1.5% on an average for all the years comprising the period of dispute. The shortage was found to be reasonable and accordingly the demand raised by the Revenue was vacated. In the case of Denso/Kirloskar Indus. Pvt. Ltd. (supra), it was held that, when large number of inputs were handled, a shortage of 0.6% was reasonable in the absence of allegations of clandestine removal, mala fides etc. In the case of Asco (India) Ltd. (supra), the shortage of inputs written off by the assessee in the balance sheet was to the extent of 0.7%. It was held that, when compared to the total quantity of inputs received in the factory, this was negligible and therefore no CENVAT credit was deniable on the shortage. In the present case, by any standards, the shortage is very much within the range found in the above cases. If the entire quantity of inputs received in the factory during the material period is taken, the shortage of issues for manufacture of final product is only 0.66%. If only the duty-paid inputs received in the factory during such period are considered, the shortage is only to the extent of 0.35%. On these facts, we think it would be appropriate to follow the above case law and to hold that it is unreasonable to disallow to the assessee Modvat credit on the inputs found short. It is ordered accordingly.
9. Insofar as coal ash is concerned, we find that, in the case of Ahmedabad Electricity Co. Ltd. (supra), cinder, which was nothing but unburnt or partly burnt pieces of coal in boiler and furnaces, was held to be not excisable as it was found not marketable. Our attention gets attracted to para (26) of the apex Court's judgment, wherein it has been observed that 'coal ash also fails the test of being manufactured in India and that it cannot be subjected to levy of excise duty'. The view taken in the cited judgment is that burning of coal does not constitute manufacture. Consequently, the demand on coal ash in the present case also is not sustainable. Of course, the penalties also must be set aside.
10. In the result, the impugned order is set aside and this appeal is allowed.
(Dictated and pronounced in open court)