Custom, Excise & Service Tax Tribunal
M/S. Ecof Industries Pvt. Ltd vs Cce, Salem on 28 June, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/40467/2014
(Arising out of Order-in-Appeal No.19/2014-CE dated 22.1.2014 passed by the Commissioner of Central Excise (Appeals), Salem)
M/s. ECOF Industries Pvt. Ltd. Appellant
Vs.
CCE, Salem Respondent
Appearance Shri B.N. Gururaj, Advocate for the Appellant Shri A. Cletus, Addl. Commr. (AR) for the Respondent CORAM Honble Shri D.N. Panda, Judicial Member Date of Hearing / Decision: 28.06.2016 Final Order No. 41059 / 2016 Learned counsel submits that the appellant repacks excisable goods and by the deeming provisions of the Central Excise Law, it has been recognized as a manufacturer under section 2(f)(iii) of the Central Excise Act, 1944. During the periods 2007-08 to 2011-12 it had purchased scouring power and detergent powder manufactured by its sister concern for repacking in different denomination packs as well as cleared. The goods so cleared are subject to Central excise duty under MRP scheme under section 4A of the Central Excise Act, 1944.
2. Revenue alleged that both the goods having been packed in containers and input credit having been enjoyed on the packing materials and others, excessive loss of excisable goods arising in the course of repacking, warrants recovery the proportionate input credit and that is recoverable.
3. Countering the allegations, appellant submitted that the very nature of the goods it received during aforesaid period for repacking is subject to moisture for which the quantity loss is bound to occur. Similarly, while repacking, handling loss is also bound to occur. Further, due to old age of the machines used for repacking, loss is also bound to occur. There was a tolerable extent of loss faced by appellant. Revenue noticed that both the commodities have shown their behavior in the following manner as to the loss incurred:-
An analysis of the shortage of raw materials over the period of 5 years indicated a pattern that is not justifiable by any standard. The loss of duty availed inputs in percentage terms for the period from 2007 08 to 2011 12, is shown as under:-
Year % of loss
SCOURING POWDER
2007 08 1.3%
2008 09 1.7%
2009 10 3.1%
2010 11 3.6%
2011 12 4.1%
DETERGENT POWDER
2000 08 No manufacture
2008 09 - do
2009 10 3.1%
2010 11 3.5%
2011 12 3.5%
From the above figures, it could be seen that the shortage has gradually been on the increase over the years.
4. The above losses have resulted from the years 2007 08 to 2011 12. Revenue alleges that the quantity of scouring powder received has resulted in shortage in repacking which was to the extent as mentioned in page 77 of the appeal folder marked as Annexure I to the show cause notice. Similarly loss has been alleged in respect of detergent powder appearing therein. Taking such figure into consideration, Revenue worked out what shall be the proportionate inadmissible CENVAT credit. That is contrary to law.
5. According to the appellant, there was certainly an increase in the trend of the loss in the course of repacking. But that was not deliberate to cause any evasion. Revenue did not find out whether such an increase was due to any diversion of the goods meant of repacking or any of the input on which CENVAT credit is taken is diverted. The whole allegation having been made on suspicion and surmise, without witnessing any trial run by Revenue nor finding diversion of goods, it is not possible for Revenue to allege inadmissibility of CENVAT credit to the extent mentioned in page 77 of the appeal folder. Revenue has also not brought out any behaviour of the appellant causing prejudice to it in the course of repacking. Therefore, levy of duty of Rs.14,29,131/- on scouring powder and Rs.5,91,347/- on detergent powder is unsustainable. So also no interest or penalty imposable.
6. Revenue on the other hand supporting the adjudication says that when the appellant went on showing the increased loss year by year, the only way left for Revenue is to infer that the appellant has tendency of diverting the finished goods meant for repacking or diverting the input for use elsewhere. Therefore the proportionate CENVAT credit availed on the process loss shown by the appellant has been ordered to be recovered. Learned AR also says that the burden of proof to show eligibility to the CENVAT credit is on the appellant.
7. Heard both sides and perused the records.
8. Revenues primary allegation is that because there was an increased trend of losses of finished goods during repacking was shown by the appellant as tabulated aforesaid, the proportionate CENVAT credit has to be disallowed on input. But there is no evidence on record to show that the goods subjected to MRP has been cleared clandestinely. That rules out the allegation against the appellant and there shall be no presumption of any diversification of the output repacked in absence of any cogent evidence and the contrary. In absence of any credible evidence to show that the goods came from the sister concern of the appellant has gone elsewhere without suffering duty on MRP basis, the appellant should not suffer any arbitrary percentage of disallowance of CENVAT credit apparent from show cause notice.
9. No doubt there is a loss and also there is increase in the trend of loss. But Revenue has not found any good reason why such loss had occurred year after year. No allegation is based on evidence. Therefore, the possibility of occurrence of loss as argued by learned counsel may not be ruled out since Revenue failed to discharge its burden of proof bringing out any cogent evidence to demonstrate that these losses were caused deliberately to avail CENVAT credit unreasonable or unlawfully. No doubt Revenue need not prove its case with mathematical precision, but it does not get the liberty to presume that the goods have been cleared clandestinely, in absence of any evidence. There is no iota of evidence in this regard. It is high time for Revenue atleast to witness a trial run in periodical intervals to ascertain the reality and also to ascertain whether any of the goods meant for repacking have been diverted without paying duty when the goods are subjected to MRP valuation and duty is levied thereon. Nothing prevented Revenue to cause enquiry as to whether any such goods have gone out of the control of excise department causing evasion. That not being done in the present case, it is difficult to agree with Revenue that there was loss of Revenue for which the alleged recovery is warranted, disallowing CENVAT credit to the extent indicated in the show cause notice.
10. Law is well settled that there is no one to one correlation in CENVAT credit jurisprudence to allow CENVAT credit. This can be said following the Apex Court judgment in the case of Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC). For convenience of reading, para 17 thereof is reproduced below:-
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 utilised, 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 credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
11. Law is also well settled that to make allegation there should be cogent and credible evidence. Mere statistical figure shall not serve purpose by any scientific calculation. The calculation should demonstrate that there was breach of law supported by evidence. That is not the present case. Added to this, without any evidence on record to show that neither the input nor the repacking goods have gone elsewhere causing evasion of duty, the input credit denied is unsustainable.
12. In view of the aforesaid discussion, the impugned order is set aside and the appeal is allowed.
(Dictated and pronounced in open court) (D.N. Panda) Judicial Member Rex 6